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Over the past year, Spanish households have seen a bigger increase in their cost of borrowing than those of any other large euro-zone economy, but the increase in the interest paid on deposits has been tiny. This is squeezing households’ disposable …
4th May 2023
Policy tightening over the past year has pushed up euro-zone households’ interest costs substantially and is a key explanation for household consumption falling. With interest costs set to rise a lot further in the coming months, we expect consumption, …
3rd May 2023
Unemployment falls as the labour market remains tight The euro-zone unemployment rate fell slightly in March and looks set to stay low in the coming months amid evidence that hiring intentions have increased. Even if the labour market softens further …
Strong core inflation leaves ECB decision finely balanced The fact that core HICP inflation edged down in April will not resolve the debate between a 25bp and 50bp hike for the ECB this week – particularly as the core rate is still close to its all-time …
2nd May 2023
March’s money and credit data, as well as the Bank Lending Survey carried out in March and April, show no clear signs that the recent troubles in the US and Swiss banking sectors have had an impact on credit conditions in the euro-zone. Nevertheless, …
Strong core inflation leaves ECB decision finely balanced The small decline in core HICP inflation in April leaves it close to its all-time high and will not resolve the debate between 25bp and 50bp for the ECB this week. The trivial increase in headline …
Recession risk receding? Data released today showed that the euro-zone economy grew by 0.1% q/q in Q1. Excluding Ireland, where the data are notoriously volatile, GDP expanded by a slightly stronger 0.2%. But after contracting in Q4, the euro-zone did …
28th April 2023
Inflation figures suggest 50bp ECB hike next week still likely National inflation figures released today suggest that euro-zone headline and core inflation edged up in April. That adds to the reasons for the ECB to opt for a 50bp hike at its meeting next …
Credit Suisse’s Q1 results, released this week, revealed the scale of the crisis that led to its demise. The two key pieces of data we learnt were that the bank saw deposit outflows of CHF67bn in the quarter and that, at its peak, it borrowed CHF168bn …
Economy expands marginally but domestic demand falling The very small increase in GDP in Q1 means a technical recession has been avoided by a whisker. However, the economy has essentially stalled as domestic demand has been hit hard by the energy shock …
Germany disappoints, while Italy powers ahead National GDP data released so far suggest that it is touch and go whether the euro-zone economy expanded in Q1, though it did avoid a contraction. We expect economic growth to remain very weak in the coming …
Positive growth in Q1 despite slumping domestic demand The increases in GDP in France and Spain in Q1 bode well for the euro-zone aggregate data to be released later this morning. We suspect that activity in both countries will lose some momentum later …
ECB most likely to raise its deposit rate by 50bp next week. Hawks can point to strong activity, high core inflation and tight labour market. We forecast the deposit rate to hit 4% and stay there for over a year. While it is not a done deal, we think the …
27th April 2023
We expect the Norges Bank to follow through on its plan to raise its policy rate by 25bp next week, to 3.25%. We have pencilled in a peak of 3.5% in June but the risks are skewed towards it reaching a higher level, particularly if the krone keeps falling …
Business surveys signal resilience in activity The EC’s economic sentiment indicator for April remained consistent with the economy expanding at the beginning of Q2. It also suggests that price pressures (though easing) remain high and that labour …
Wage growth in the euro-zone is likely to remain above the level compatible with 2% core inflation this year and only gradually return to a more sustainable level thereafter. For the past year, wage growth has run well above the 3% y/y or so compatible …
Sweden dodges recession for now News that the Swedish economy expanded slightly in Q1, and thereby narrowly avoided a recession, adds to the evidence that economic activity in Europe as a whole has held up well in Q1. That said, we still think Sweden is a …
Spain’s underperformance since the pandemic can be explained in part by the incomplete recovery in its tourism sector and in part by the sharp fall in real household disposable incomes. That said, we think the economy will outperform at least in the first …
26th April 2023
With the ECB poised to raise rates next Thursday, the Riksbank has got its retaliation in early, hiking its key rate by 50bp. The statement indicates that policymakers expect to raise rates by another 25bp at most but, on balance, we think a further 50bp …
Riksbank leads the way with 50bp With the ECB set to raise rates next Thursday, the Riksbank has got its retaliation in early, raising its key rate by 50bp to 3.5%. The press release indicates that the Bank expects to raise rates by another 25bp at most, …
What do recent data signal about recession risk in the euro-zone? How high will the ECB take the policy rate to rein in inflation pressure? Has March’s bank turmoil had any residual impact on the European banking system? Economists from our Europe and …
25th April 2023
A note of caution from the Ifo The Ifo Business Climate Index rose again in April but remained in contractionary territory. This is contrast to the PMIs which point to much stronger economic performance at the start of Q2. The small rise in the Ifo …
24th April 2023
A note of caution from the Ifo The small increase in the Ifo Business Climate Index in April confirms that the German economy remained resilient in the face of higher interest rates at the start of Q2. But the survey was much more downbeat than the PMIs, …
The Norwegian krone has been the worst G10 performer against the US dollar by some way in recent months. Though lower energy prices and weakening risk sentiment have likely played a role, we suspect foreign exchange transactions by Norges Bank are also …
21st April 2023
Our latest forecasts for the Scandinavian currencies, are for the Swedish and Norwegian currencies to appreciate by 5% and 11% respectively against the euro by year-end, to SEK 10.75 and NOK 10.25. While we think both currencies will strengthen, the …
More signs of economic resilience… GDP data due next week are likely to confirm that, after stagnating in Q4, the euro-zone economy returned to growth in Q1. We have pencilled in a 0.2% q/q expansion in the region as a whole, with positive outturns in …
Strong start to Q2 points to 50bp May hike The further rise in the Composite PMI in April suggests that the euro-zone economy continued to expand at the start of Q2. With price pressures and employment intentions also strong, that adds to the reasons for …
ECB account consistent with further rate hikes The account of the ECB’s last policy meeting, which took place just days after the collapse of Credit Suisse, confirms that it was only the banking sector turbulence that deterred policymakers from …
20th April 2023
The Riksbank will raise its key policy rate by another 50bp next week, bringing it to 3.5%, and we think a final 50bp increase is most likely in June. Policymakers sounded pretty hawkish at the February meeting and incoming data since then have …
19th April 2023
Core inflation remains high Final inflation data confirmed that the drop in headline inflation in March was entirely due lower energy inflation. With the core rate not yet passed its peak, we think the ECB will raise rates to a peak of 4%. Data published …
Note: We discussed our revamped FCIs and took your questions on global financial conditions in a 20-minute online briefing on Thursday, 20 th April . Watch the recording here . We have revamped our financial conditions indices (FCIs) for advanced …
18th April 2023
Recent events have highlighted that meeting regulatory capital and liquidity requirements does not guarantee that banks will be financially stable. The forthcoming EU bank stress test results should give a better idea of the banks’ health, but those tests …
17th April 2023
The outlook for economic activity remains poor due to the impact of high inflation, tight monetary policy and weak external demand. Sweden is already in a recession, not least thanks to the slump in its property sector. And while Norway and Switzerland …
14th April 2023
This week, Swiss legislators voiced their concerns about the collapse of Credit Suisse and its takeover by UBS. While the vote to reject the Credit Suisse rescue package will not affect the takeover itself, or the government guarantees provided, it has …
Data point to positive growth in Q1 The latest official activity data suggest that the euro-zone economy posted a small expansion in Q1. Admittedly, retail sales fell in February, continuing the downward trend they have been on for over a year. But lower …
Core inflation dips below 9% The fall in Sweden’s measure of core inflation to 8.9% in March suggests that it may now be passed its peak. But it is still much higher than the Riksbank had anticipated at its February meeting and does not change our view …
We think that the recent stress in the banking sector has had little impact on the outlook for monetary policy in the euro-zone. While there were significant outflows of bank deposits in the five months ending in February, that was due to higher …
11th April 2023
Rise in core inflation makes 25bp hike in May very likely March’s inflation data make it all but certain that the Norges Bank will press on with its planned 25bp rate hike at the next meeting in May. The increase in headline CPI inflation from 6.3% in …
Commercial real estate (CRE) has become an area of particular concern against a backdrop of higher interest rates and a pandemic-induced reduction in demand for office space. Sweden’s economy looks particularly vulnerable to a downturn in the sector for …
6th April 2023
Expansion in Q1 likely… After stagnating in Q4, euro-zone GDP probably rose in the first quarter. The final Composite PMI , released this week, confirmed that economic conditions improved further in March (though a bit less than implied by the flash …
Industrial resilience won’t prevent recession The second consecutive big increase in German industrial production in February all but confirms that GDP returned to growth in Q1. The industrial resilience may continue in the coming months but we still …
Surveys point to expansion in Q1 March’s PMIs suggest that the economy expanded in Q1. They also point to further gains in employment and strong price pressures. With the turmoil in the banking sector having stabilised, this makes us more confident in our …
5th April 2023
March’s sharp fall in headline inflation in Switzerland will provide some relief for the SNB as the decrease was spread across a wide range of goods. However, underlying price pressures remain strong by Swiss standards and we expect the SNB to hike …
3rd April 2023
This time last week the markets and financial media were worrying about the future of Deutsche Bank. German Chancellor Olaf Scholz publicly stated that the bank was “very profitable” and President Macron declared that the European banking sector as a …
31st March 2023
Less than two weeks have passed since the demise of Credit Suisse so it is too early to draw many lessons about the implications (if any) for the global banking sector. But the speed of the collapse of a bank which had passed the key financial health …
Headline rate falling but strength of core inflation will keep ECB hawkish Policymakers at the ECB won’t read too much into the drop in headline inflation in March and will be more concerned that the core rate hit a new record high. So March’s consumer …
Headline rate falling but strength of core inflation will keep ECB hawkish Policymakers at the ECB won’t read too much into the drop in headline inflation in March and will be more concerned that the core rate hit a new record high. Overall, March’s …
Headline inflation tumbling, core peaking The big falls in headline inflation in Germany and Spain should provide some relief for struggling households in the coming months. And core inflation in Germany may now have passed its peak. However, with …
30th March 2023
Business surveys point to small expansion in Q1 The small decline in the EC’s economic sentiment indicator in March leaves it still pointing to an increase in GDP in Q1. Meanwhile, firms’ selling price expectations suggest that core inflation might be …
