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A 50bp rate hike next week seems to be literally a done deal. The recent strength of the economy means ECB will hike further. Quantitative tightening looks set to accelerate from June. With a 50bp rate hike at next week’s ECB meeting seemingly a done …
26th January 2023
Recession might be avoided, but outlook still poor The further increase in the Ifo Business Climate Index in January confirms that the recovery in German business sentiment that started at the end of 2022 has continued this year. But the fall in its …
25th January 2023
Recession might be avoided, but outlook still poor The renewed increase in the Ifo Business Climate Index in January confirms that the recovery in German business sentiment that started at the end of 2022 has continued this year. But the fall in its …
A closer look at Spain’s inflation data shows that there are significant measurement difficulties affecting both energy and core price data. However, we still expect measured headline inflation to remain lower in Spain than in most of the euro-zone and …
24th January 2023
Further improvement in activity amid high prices pressures The increase in the flash euro-zone Composite PMI for January left it consistent with the economy roughly stagnating. With employment intentions and price pressures still high, there is nothing …
Further improvement in activity amid high prices pressures The increase in the flash euro-zone Composite PMI for January was a little better than expected and left it consistent with the economy roughly stagnating. With employment intentions and price …
The shift away from variable towards fixed-rate mortgages in many European countries over the past 15 years means that it will take longer than in the past for interest rate hikes by the ECB to feed through to household interest expenditure. This …
23rd January 2023
We now think German industry will continue to grow in the coming months as lower gas prices, easing supply shortages and high backlogs of orders support production. One of the reasons for the resilience of the German economy in the face of the energy …
20th January 2023
The Swiss franc is not immune to the shifting global landscape and we now suspect that it will be broadly stable against the euro in the coming months rather than appreciating. Looking back, the franc has been through three distinct phases since the …
The improvement in recent data and brightening outlook continues to be the key talking point for euro-zone-watchers. In brief, it looks as if euro-zone GDP may not have contracted in Q4 2022 after all, and the prospects for this year have brightened …
The account of the December meeting, along with data released since then and recent comments from policymakers, suggest the ECB will raise its deposit rate from 2% to 3% by March rather than May as we had previously expected, and that QT will accelerate …
19th January 2023
Norges Bank tightening nearly over The Norges Bank eased off the brakes today by leaving policy on hold, but signalled that it will raise its policy rate at the next meeting in March. We suspect that will be the final hike in this tightening cycle, and …
The Norges Bank eased off the brakes today by leaving policy on hold, but signalled that it will raise its policy rate at the next meeting in March. We suspect that will be the final hike in this tightening cycle, but the risks are skewed towards …
Underlying price pressures still strong The euro-zone has probably passed peak inflation as sharp declines in food and energy inflation are set to drag down the headline rate. But December’s final HICP data showed that underlying inflation remained …
18th January 2023
Outlook improving, but high interest rates will keep economy weak Economic sentiment in Germany improved further at the start of 2023 adding to the signs that the economy will hold up better than we feared. But with underlying price pressures still …
17th January 2023
The fall in Spanish gas and electricity prices that has already happened is likely to cause energy inflation to slump to minus 20% in the coming months and this in turn will pull headline inflation below 2%. Core HICP inflation will probably also remain …
16th January 2023
After months of gloom, there seems to be some newfound optimism about the euro-zone’s economic prospects. Commentary about the euro-zone economy has turned more positive. And this year’s rally in euro-zone financial markets probably at least partly …
13th January 2023
Higher Swedish GDP forecast We learnt this week that Sweden’s monthly GDP Indicator declined by 0.5% m/m in November as a result of a fall in manufacturing output and “several service producing industries”, suggesting that policy tightening was …
The euro-zone economy held up a bit better than we expected at the end of last year. On balance, the data point to GDP flat-lining or contracting only slightly in Q4. Germany’s statistics office this morning published its first estimate of GDP in 2022, …
Q4 contraction probably avoided Annual GDP data for Germany suggest that the economy avoided a contraction in Q4 and that the euro-zone as a whole will probably prove more resilient to the energy crisis than we initially feared. But activity clearly …
Another rise in core inflation means 50bp hike in February nailed on Yet another larger-than-expected increase in the Riksbank’s target measure of inflation and in the core rate suggest that policymakers are highly likely to raise rates by 50bp in …
The Norges Bank is one step from ending its tightening cycle. We expect it to raise its policy rate by 25bp next week, to a peak of 3%. After that it is likely to pause while it waits to assess the full effects of the cumulative 300bp of tightening that …
12th January 2023
November’s money and credit data showed that the effects of tighter ECB policy were only just starting to be felt. So while some of the recent economic data have been a bit stronger than expected, the drag from tighter monetary policy is set to …
11th January 2023
Reform of the French pension system is notoriously difficult and it is possible that the proposals unveiled yesterday will be watered down or even withdrawn completely. However, on balance, we think there are more reasons for cautious optimism that they …
There has been a further slight improvement in prospects for the euro-zone in recent weeks. Business surveys suggest that activity is no longer contracting sharply, headline inflation seems to be past its peak, and wholesale gas prices have plunged. …
10th January 2023
Strong core inflation to prompt one final Norges Bank hike The continued strength of core inflation will encourage the Norges Bank to press on with another 25bp interest rate increase next week. While there is still some more upside risk to underlying …
Labour market even stronger than expected The stability of the euro-zone unemployment rate in November, at a record low of 6.5%, shows that the labour market held up even better than we expected at the end of last year. And the third successive monthly …
9th January 2023
Outlook improved, but headwinds remain The rise in German industrial output in November confirms that industrial output held up better than we had expected in Q4. However, while the recent slump in gas prices should help energy-intensive firms in the …
Outlook improved, but headwinds remain The rise in German industrial output in November suggests that industrial output has held up better than we anticipated in the fourth quarter in part because of an increase in production in energy-intensive …
Swiss manufacturing cruising, services snoozing The latest batch of surveys suggest that, in common with the euro-zone, prospects for the Swiss economy improved marginally at the end of last year. For a start, the KOF economic barometer for December …
6th January 2023
Inflation is on its way down Headline inflation in the euro-zone has probably passed its peak. (See here .) Admittedly, core inflation rose to a new record high in December, with both services and core goods inflation increasing in y/y terms. Core goods …
New year cheer but ECB will stick to hawkish script The fall in inflation and improvement in economic sentiment in December suggest that the euro-zone’s case of stagflation is not quite as acute as feared a few months ago. Nonetheless, a technical …
New year cheer but ECB will stick to hawkish script The fall in inflation and improvement in economic sentiment in December suggest that the euro-zone’s case of stagflation is not as acute as feared a few months ago. Nonetheless, a technical recession is …
We have revised our European wholesale gas price forecast down and, as a result, now expect euro-zone inflation to fall more rapidly than we had previously anticipated. In turn, this means that real incomes and economic activity might be slightly …
5th January 2023
Further improvement, but recession still likely December’s final PMIs suggest the euro-zone economy held up better than we expected in Q4, but are still consistent with a mild recession. They also suggest price pressures remain very high. The upward …
4th January 2023
Fall in headline rate but core rate rises Headline inflation in Switzerland fell in December but the rise in the core rate will be a concern for SNB policymakers. We still think that the Bank will raise rates by just 25bp in March, compared to the 50bp …
Plunge in inflation in December likely to reverse in January The sharp fall in German inflation in December was due to one-off energy subsidies so it will probably reverse in January. Headline inflation is still likely to decline rapidly in March, but we …
3rd January 2023
Drop in inflation in December likely to reverse in January The sharp falls in CPI inflation in several major German states in December suggest that inflation figures for Germany as a whole and for the euro-zone (due later today and on Friday, …
A ceiling agreed but with lots of caveats We don’t think the EU announcement of a cap on wholesale gas prices from February next year will have any practical impact. At first sight, the mechanism looks like a big deal. The ceiling of €180/MWh is much …
22nd December 2022
Jump in money supply won’t worry the SNB Swiss money supply data for November, released earlier this week, showed that M3 increased at its fastest year-on-year pace since February. (See Chart 1.) This could, at least in theory, encourage policymakers to …
The EU’s new policy to limit gas prices is unlikely to be activated next year. And with so many caveats built in, it seems the only thing countries agreed on was that a cap was indeed needed to show unity. We are sceptical that the EU’s mechanism to cap …
20th December 2022
Click here to read the full report. Overview – We think the euro-zone is now at the start of a recession, driven by high inflation, tightening financial conditions and weak external demand, and anticipate two quarters of contraction followed by a gradual …
19th December 2022
Tight labour market suggests that wage growth will stay strong Euro-zone wage growth has accelerated this year and we expect it to stay strong. In turn, this will contribute to core inflation remaining above 2% in 2023. Data released this morning showed …
Sentiment recovers further, but recession still coming The further increase in the Ifo Business Climate Index in December and the general improvement in the surveys over the past two months suggests the outlook for the German economy has improved. But …
Sentiment recovers further, but recession still coming The renewed increase in the Ifo Business Climate Index in December and the general improvement in the surveys over the past two months suggests the outlook for the German economy has improved. But we …
Despite action, inflation will stay high It was a big week with for central banks with the Fed, BoE and ECB all raising rates by 50bp. The minnows were also in on the action with 50bp hikes for the SNB and Denmark’s Nationalbank and a 25bp hike by the …
16th December 2022
ECB a long way from pivot… Thursday’s ECB meeting has sparked significant turmoil in euro-zone financial markets. Ten-year Bund and BTP yields recorded some of their largest one-day rises in the past decade and are up ~25bp and ~50bp respectively from …
Improvement, but surveys still point to recession The flash PMIs for December provide more evidence that businesses in some parts of the euro-zone have become a bit less gloomy about their current situation. But they still point to a contraction in the …
Improvement, but surveys still point to recession The flash PMIs for December provide more evidence that businesses in some parts of the euro-zone have become a bit less gloomy about their current situation – but they still point to a combination of …
Today’s 50bp rate hike came alongside hawkish comments which are consistent with our view that the deposit rate will peak at 3%, significantly higher than the consensus forecast and a touch above what was priced into the market. The press release also …
15th December 2022
