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The Greek Government’s inability to agree on how to cut public spending highlights the ongoing fragility of the situation there. And with euro-zone policymakers still unwilling to concede any ground, we still see Greece leaving the euro-zone, perhaps even …
8th August 2012
June’s industrial production figures did little to reduce the danger that the German economy tipped into recession in the second quarter. … German Industrial Production …
The sharp fall in GDP in Q2 highlights the huge economic and fiscal problems that Italy faces. Although the pressure from the markets has recently eased, we still think that it is only a matter of time before Italy is forced to seek a sovereign bail-out. …
7th August 2012
The ECB’s statement last week that it might buy Spanish bonds if the government first applies for EFSF support has left many questions unanswered, which we address in this Update. In short, it seems likely that Spain will apply for and receive support …
6th August 2012
The ECB’s statement last week that it might buy more peripheral government bonds if countries first apply to the EFSF for support was a step forward. But Spain and Italy are not yet willing to accept the harsh reform and austerity conditions that would be …
3rd August 2012
President Draghi’s comments at today’s ECB press conference were a blow to hopes that the Bank might quickly make huge bond purchases to address the euro-zone’s escalating debt crisis. While the Bank might buy more bonds in future, the region’s …
2nd August 2012
Despite the fact that Latvia’s economy has returned to growth, it is still far from clear that it has undergone the necessary “internal devaluation” required to fully restore competitiveness. What’s more, even if Latvia does complete its adjustment, there …
1st August 2012
Recent data from the external sector have confirmed that export growth has continued to slow. Indeed, the annual growth rate of export values fell to its lowest level in two and a half years in May. Admittedly, the recent fall in the euro should help …
31st July 2012
Recent fiscal data suggest that a large number of peripheral and core economies are struggling to make inroads into their budget deficits. And with the growth outlook continuing to deteriorate, many governments will struggle to get their fiscal plans back …
With euro-zone inflation unchanged at 2.4% in July and unemployment at a record high in June, households’ incomes are under growing downward pressure. … Euro-zone Unemployment (Jun.) & Flash CPI …
The Swedish GDP figures for Q2 confirmed that the economy is continuing to weather the storm from the euro-zone far better than most of its neighbours. … Swedish GDP (Q2 …
30th July 2012
July’s deterioration in EC economic sentiment added to the evidence that the euro-zone is heading deeper into recession, suggesting that not only the periphery but also the previously resilient core economies are in need of extra policy support. … …
The Swedish GDP figures for Q2 confirmed that the economy is continuing to weather the storm from the euro-zone far better than most of its neighbours. … Swedish GDP …
The markets got very excited about three little words at the end of last week. Spanish and Italian bond yields plunged, and the euro and euro-zone stock markets rose sharply, in response to ECB President Mario Draghi’s pledge to do “whatever it takes” to …
27th July 2012
Despite President Mario Draghi’s pledge to do “whatever it takes” to preserve the euro, the ECB appears unlikely to follow up July’s interest rate cut with further significant policy announcements at its Governing Council meeting on 2nd August. While the …
The latest monetary data provide no indication that the ECB’s earlier liquidity measures are prompting banks to lend more to the wider economy. … Euro-zone Monetary Indicators Monitor …
26th July 2012
We think that some of the peripheral euro-zone economies may need their real exchange rates to fall by as much as 40% to regain competitiveness and kick start a period of export driven growth. Accordingly, it may take years, if not decades, of depression …
25th July 2012
While the depreciation of the euro exchange rate is a helpful development for the euro-zone economy, suggestions that it alone can save the currency union look very hopeful. … Weaker currency won't save the …
July’s Ifo index will add to the growing concerns over the health of the German economy and the outlook for the country’s credit rating. … German Ifo Survey …
A Spanish sovereign bail-out would leave little left in the pot to provide further assistance to Portugal and Ireland and, much more crucially, to deal with serious problems in Italy. … Spanish bail-out will leave little in the …
24th July 2012
July’s euro-zone PMI survey supports the view that the region as a whole is in the midst of a pretty deep recession. … Euro-zone Flash PMIs …
The formation of a ‘pro bail-out’ government may have recently shifted the markets’ spotlight away from Greece. But the Troika’s visit to Athens, which begins tomorrow, looks set to prompt renewed concerns over the country’s future in the euro-zone. … Is …
23rd July 2012
Developments last week confirmed that support for the periphery from the region’s core governments will be slow in coming. Some attention has turned back to the ECB for policy support, but it has very little left in its armoury. Its recent interest rate …
20th July 2012
Finland’s continued hardline stance on the provision of support to the peripheral economies increases the risk that the euro-zone will not implement the measures needed to maintain the existing membership of the single currency. … Could Finland be the …
19th July 2012
Ireland’s extraordinarily open economy and strong trade links outside the euro-zone mean that it stands to gain more than other peripheral economies from the depreciation of the euro. But the currency’s fall cannot address all of the country’s problems. … …
18th July 2012
July’s fall in the ZEW investor expectations index is another sign that Germany’s earlier economic resilience is over. The weakness of sentiment regarding even the region’s strongest economy supports our view that the euro-zone is heading into a deep …
17th July 2012
The outlook for the European economy has deteriorated as the euro-zone debt crisis has broadened to envelop bigger countries like Spain. Despite the growing talk of the need for growth across the currency union, very weak activity in most areas - …
The drop in the euro exchange rate to its most competitive trade-weighted level in over nine years might appear to improve the euro-zone’s growth prospects and reduce the need for the uncompetitive peripheral economies to undertake painful internal …
13th July 2012
The contraction in GDP in the first quarter of this year is a reminder that, while Ireland has made some progress in restoring competitiveness and regaining the confidence of the bond markets, it is not yet out of the woods. … Ireland GDP …
12th July 2012
May’s increase in euro-zone industrial production does not alter our view that the sector will continue to act as a drag on overall GDP growth. … Euro-zone Industrial Production …
The measures announced at last night’s finance ministers’ meeting to support Spain don’t alter our view that the country will require a full sovereign bail-out in the fairly near future. … Spanish sovereign bail-out still looks very …
10th July 2012
Leaving the euro-zone would clearly have adverse consequences for households in the exiting country as higher import prices hit spending power. But they could reasonably believe that those costs would be outweighed by the benefits of less aggressive …
9th July 2012
After cutting interest rates to a historic low last week, ECB President Mario Draghi suggested that there was little more that the ECB could do. As far as conventional policy is concerned, this may well be the case and we see interest rates remaining at …
May’s monthly bounce in German industrial production does not alter the picture of a sharp slowdown in the sector previously considered the economy’s main engine of growth. … German Industrial Production …
6th July 2012
Government bond yields in Portugal have trended lower throughout this year. This contrasts with countries such as Spain and Italy, which have seen increases in recent months. We think this is because Portugal’s economy, though weak, is not associated with …
July’s ECB interest rate cut did little to alter the euro-zone’s bleak economic outlook, particularly as the Bank indicated that it is unlikely to pursue any bolder unconventional measures for now. … ECB cuts rates but signals inability to do …
5th July 2012
François Hollande’s supplementary budget is in stark contrast to his vow to favour growth over austerity. With market pressures and a weakening economic outlook forcing even France to pursue budget cuts, hopes that the struggling periphery might resist …
4th July 2012
Euro-zone activity indicators continue to point to a broad-based worsening in economic conditions. Admittedly, the prospect of further falls in CPI inflation (see Chart) following the recent plunge in the oil price is at least one piece of good news for …
3rd July 2012
We have long argued that it may be in the best interests of Greece to leave the euro-zone. And while some commentators have suggested that Greece would benefit from waiting until it can fully cover its financing needs before leaving, we think that it …
The latest data on labour market conditions and the manufacturing sector in the euro-zone confirm an overall picture of economic weakness. This provides a difficult backdrop against which European policymakers are attempting to find a solution to the …
2nd July 2012
The improvement in sentiment towards the euro-zone following last week’s EU summit is, in our view, likely to prove short-lived. Indeed, we still expect the resolution to the euro-zone crisis to involve one or more countries exiting the single currency. …
Against a background of low expectations, the changes agreed at the EU Summit to tackle several issues which threatened to inhibit the effectiveness of short-term support measures came as a pleasant surprise, as reflected by the positive market response. …
29th June 2012
The latest monetary data confirm that the ECB’s earlier liquidity measures are not yet having the desired effect. While money supply growth is picking up, bank lending to the private sector remains stagnant. … Euro-zone Monetary Indicators Monitor …
Euro-zone CPI inflation was unchanged in June, but this does not alter our view that it will fall sharply over the coming months and the ECB will cut interest rates at its meeting next week. … Euro-zone Flash CPI …
With the euro-zone’s debt crisis intensifying again and the economic downturn deepening and broadening, we think that the ECB will opt to cut interest rates by 25bps in July. But the Bank seems unlikely to announce more long-term lending, believing that …
28th June 2012
June’s EC survey mirrors the picture from other timely indicators lately that the euro-zone is in a deepening and broadening recession. This further underlines the need for policymakers to come up with bold support measures at the EU summit today and …
The recent sharp fall in the oil price has prompted us to revise down our euro-zone CPI inflation forecast for this year and next. But this will not prevent the region from falling into a deep recession. … Lower oil price will not boost euro-zone …
27th June 2012
The latest fiscal data provide further support to the view that recessions in the southern euro-zone economies are causing the governments there to fall behind their fiscal targets. … Euro-zone Fiscal Monitor …
