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Further improvement, but headwinds still strong The further rise in the Ifo in February confirms that the German economy may have been a bit more resilient than we had expected in Q1. But with the index still in recessionary territory and the drag from …
22nd February 2023
The euro-zone’s Composite PMI was much stronger than expected in February, but it excludes the construction sector where prospects are weaker. Tighter financial conditions and softer demand in the region as a whole, together with the removal of generous …
21st February 2023
Swedish house prices have fallen 18% from their peak and could drop by a further 5% or so from here. This should not cause significant financial stability problems but will be a major drag on economic activity and is a key reason why we expect Sweden to …
Sentiment continues to improve The ZEW indicators point to a further improvement in sentiment towards Germany and, along with other recent surveys, suggest that the economy is holding up better than we had anticipated. The rise in the ZEW economic …
Economy growing, price pressures remain strong February’s chunky rise in the euro-zone Composite PMI suggests that the economy will grow in Q1. With the labour market still very tight and price pressures strong, the survey will reinforce ECB …
Economy growing, price pressures remain strong February’s chunky increase in the flash euro-zone Composite PMI highlights the continued resilience of activity and suggests that the economy will grow in Q1. With the labour market still very tight and price …
Q uantitative tightening and the repayment of TLTROs mean that the ECB’s assets are likely to decline by around one quarter by the end of 2024. We expect the repayment of TLTROs to have a negligible macroeconomic impact. QT should also proceed smoothly, …
20th February 2023
The minutes of the Riksbank’s latest policy meeting show that the previously dovish Executive Board members have become less so, and that the new members are on the hawkish side. That reinforces our view that the Bank will raise rates by 50bp in April …
Yet another increase in core inflation The fall in the Riksbank’s target measure of inflation was largely due to a huge one-off drop in electricity prices but policymakers will focus more on the big increase in core inflation. This vindicates their recent …
The ECB’s doves have been pretty quiet for the past few months, but Fabio Panetta – who is probably the most influential one these days – gave a moderately dovish speech this week. Among other things, he suggested that inflation may already have peaked. …
17th February 2023
The increase in Switzerland’s core inflation rate in January is likely to provoke a strong response from the SNB at its next meeting in March. We now forecast it to raise the policy rate from 1.0% to 1.5% at that meeting, followed by an additional 25bp …
We think French wage inflation will remain much stronger than in the pre-pandemic period this year. This is not least because of the automatic adjustments to inflation of the minimum wage and negotiated wages engrained in the French system. Charts 1 …
16th February 2023
The resilience of the economy and house prices, together with the strength of inflation, suggest that the Norges Bank will raise interest rates a bit further than we previously anticipated. We now forecast the Bank’s key policy rate to peak at 3.5% in …
15th February 2023
Economy struggling at the end of last year The fall in euro-zone industrial production and imports in December further highlights the weakening in the economy at the end of last year. We expect the economy to enter a recession this year as the squeeze on …
Resilient economy boosts case for further rate hikes after March Norway’s mainland economy put in a much better performance in Q4 than the central bank expected and ended the year with a healthy expansion in December. Together with the continued …
Recession looming Confirmation that euro-zone GDP growth slowed to a crawl in Q4 does not alter our view that the region is now falling into recession. That said, we think the labour market will continue to hold up well. The second estimate of Q4 GDP …
14th February 2023
Inflation still likely to fall this year The rise in Swiss headline inflation will be of less concern to SNB policymakers than the increase in the core rate to its highest level on record. However, we do not think these increases are the start of a new …
13th February 2023
First impressions are important because of the primacy effect which means they are, apparently, stored more easily in the long-term memory. That may be why Erik Thedéen used his first meeting as Riksbank Governor to spring a hawkish surprise this week, …
10th February 2023
Hawks singing the same tune At February’s ECB meeting, policymakers were unwilling to commit to raising interest rates further beyond the promised 50bp hike in March. But their comments this week show a clear intention to do so. Table 1 summarises some …
Rate hike next month a near certainty, more could follow The strength of consumer price inflation in January makes it all but certain that the Norges Bank will raise its policy rate at its next meeting in March, most likely by 25bp. And with house …
The Riksbank’s 50bp rate hike today was expected but the decision to begin actively selling government bonds and the emphasis on the exchange rate were a surprise. Possibly this simply reflects the new Governor’s desire to make his mark. Either way, we …
9th February 2023
Governor Thedéen steps on the brakes The Riksbank’s decision to raise its policy rate by 50bp today was expected but the decision to begin actively selling government bonds is a surprise. We now think the policy rate will rise a bit further in the coming …
German inflation statistics debacle continues The main takeaway from German flash inflation figures for January, which were finally released today after a week of delay, is that headline inflation in both Germany and the euro-zone fell further in January, …
The latest business surveys suggest that the euro-zone will stagnate or suffer only a mild recession, but the money and credit data paint a much gloomier picture. Net lending was negative in December and lower than in any month since 2014, when the …
7th February 2023
Slump in industrial production points to recession After proving resilient for most of 2022, German industrial production slumped in December, adding to the reasons to expect the economy to fall into recession. December’s 3.1% m/m fall in industrial …
Consumer spending weakened at the end of last year December’s retail sales data show that the sector ended 2022 on a weak note. We think total household consumption will fall in the first half of this year, pulling the economy into recession. The chunky …
6th February 2023
With the dust now settled after yesterday’s ECB meeting, it is clear investors have stuck with their dovish interpretation of the decision. They now expect the deposit rate to peak at around 3.4%, rather than 3.6%. (See Chart 1.) Meanwhile, 10-year …
3rd February 2023
As we argued in our latest Riksbank Watch , the fact that Sweden’s inflation rate rose more than expected in November and December is a key reason why we expect policymakers to raise rates by 50bp next week. But looking further ahead, we are …
Price pressures intense in the services sector Today’s final PMIs confirmed that economic activity in the euro-zone as a whole continued to roughly stagnate in January but picked up in Italy and Spain. They also show that inflationary pressures remain …
Whereas the Bank of England and (arguably) the Fed delivered dovish surprises over the past twenty four hours, we think the ECB decision did not amount to a clear change of policy stance. The ECB is still likely to raise its deposit rate from 2.5% today …
2nd February 2023
Peak rate still some way off Whereas the Bank of England and (arguably) the Fed delivered dovish surprises over the past twenty four hours, we think the ECB’s statement does not amount to a clear change in the policy stance. The 50bp hike today was almost …
With inflation and price pressures still high, the Riksbank will probably raise interest rates by 50bp next week. However, in contrast to the market, we think this will probably end the tightening cycle and are bringing forward our forecast for a first …
Headline inflation to fall sharply, but core rate will be sticky January’s drop in headline inflation should be taken with a pinch of salt because a “data processing problem” meant that the data for Germany had to be estimated and might therefore be …
1st February 2023
Unemployment steady as the labour market remains tight The euro-zone unemployment rate was unchanged at 6.6% in December but is likely to increase over the coming months as the economy falls into recession. That said, the increase will probably be …
Headline inflation to fall sharply, but core rate will be sticky January’s bigger-than-expected decline in headline euro-zone inflation should be taken with a big pinch of salt because a “data processing problem” at Germany’s statistics office meant that …
We think that the euro-zone will enter a recession in the first half of this year and then experience a slow recovery. Our new GDP forecasts show a 0.5% contraction in 2023 and growth of only 0.8% next year. Data released this morning confirmed that the …
31st January 2023
Recession likely in first half of this year The small increase in euro-zone GDP in Q4 was better than we feared a few months ago but the economy excluding Ireland still flat-lined. As the data deteriorated towards the end of the quarter and tighter …
Further weakness in bank lending to come Much like the latest money and credit data, the Q4 Bank Lending Survey painted a much more downbeat picture of economic prospects than the latest business surveys. Banks are tightening their lending standards and …
Economy likely to contract in first half of 2023 The small increase in France’s GDP in Q4 last year was worse than it first appears as household consumption fell sharply and investment growth slowed. It looks as if a (mild) recession in the first half of …
Sentiment up, price pressures coming off the boil but still strong The improvement in economic sentiment in January is consistent with the picture painted by other surveys. But the high level of firms’ selling price expectations shows that the ECB’s …
30th January 2023
Recession not off the table yet The fall in German GDP in Q4 shows that the energy crisis started to dent activity at the end of last year. This pours cold water on the recent optimism about the prospects for the euro-zone and suggests that a technical …
Recession not off the table yet The fall in German GDP in Q4 suggests that the energy crisis started to dent activity at the end of last year. This pours cold water on the recent optimism about the prospects for the euro-zone and suggests that a technical …
Recession began in Q4 after all Data published today show that the economy contracted by 0.6% q/q in Q4 as the resilience previously reported towards the end of last year has been revised away. With the more timely data for December and January still …
Outlook better, but still bad There has been a marked improvement in sentiment towards the euro-zone recently as activity indicators have come in stronger than expected. Euro-zone GDP now looks likely to have flat-lined in the fourth quarter and January’s …
27th January 2023
Whither the Norwegian krone? Norway’s position as a major oil and gas exporter means that movements in its currency are typically correlated with moves in energy prices. But since the start of 2021, the krone has failed to keep pace with the rise in oil …
The reversal of temporary subsidies and changes to weightings will probably push headline German HICP inflation back up in January. But the bigger picture remains that the headline rate will fall sharply this year and that the ECB will continue to focus …
December’s euro-zone money and credit data show that the effects of rising interest rates were starting to be felt. Households and firms shifted their money into longer-term deposits which are less likely to be spent, and lending growth slowed. Overall, …
GDP up in Q4, but still struggling to reach past peaks Spain’s GDP increased in Q4 and is performing better than we expected only a couple of months ago. But Spain is still a laggard in Europe, with the economy smaller than it was before Covid. We think …
