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US CPI number triggers euro-zone rally Euro-zone financial markets rallied yesterday after US inflation data for October came in lower than expected. Immediately after the data release, Bund yields fell by around 15bp and the euro and DAX rose by 2-3%. …
11th November 2022
House prices falling in Sweden and Norway Sweden’s housing market has cooled significantly this year and prices are likely to fall outright soon. SEB’s monthly survey showed that in October, 22% of households expected house prices to rise whereas a much …
Underlying price pressures to remain very strong The rise in core inflation in Germany in October confirms that underlying price pressure in the country are still building. We expect the core rate to remain well above 2% throughout next year. Final HICP …
Strong inflation requires Norges Bank to keep on hiking October’s stronger-than-expected inflation data pose an upside risk to our forecast for the policy rate to peak at 3%. But with house prices falling, the Norges Bank faces a tricky balancing act. The …
10th November 2022
The ECB might start quantitative tightening next year but that’s not guaranteed, and even if it does so we doubt that it will make much of a dent in its government bond holdings. As a result, interest rates will remain the most important tool for …
9th November 2022
The latest activity indicators show that the economy contracted in October, and the forward-looking measures of new orders and expectations suggest that the downturn will get worse. We have pencilled in a contraction in GDP of 0.5% q/q for the fourth …
8th November 2022
Rise in retail sales not a sign of things to come September’s increase in euro-zone retail sales is unlikely to be sustained. Falling real incomes and rock bottom consumer confidence suggest that household spending will fall sharply over the winter. …
German industry still set for a tough winter German industrial production rose significantly in September but we doubt this is a sign of things to come. With industry facing headwinds from high energy costs, rising interest rates and cooling demand, we …
7th November 2022
Despite energy price caps and direct support for households, we think euro-zone private consumption will fall further than most anticipate in the coming months, and we expect investment and exports to fall too. All told, the forthcoming recession is …
4th November 2022
While front-month European natural gas prices have fallen sharply as concerns have eased around shortages this winter, longer-dated futures haven’t fallen by as much. That reflects how difficult it will be to fill storage without Russian gas flows next …
ECB Governing Council members had a busy week, with just under half of them giving speeches or interviews on the outlook for monetary policy. There are four key takeaways from their comments. First, rates will rise further. All policymakers who spoke …
Falling inflation may keep SNB in check The reductions in headline and core inflation in Switzerland in October confirm that inflation has now passed its peak, and both measures look set to continue on a downward path next year. (See here . ) We don’t …
Recession looms while inflation stays exceptionally high The final euro-zone PMIs for October paint a clear picture of falling activity and sky-high inflation. We expect the ECB to prioritise the fight against inflation and press on with raising the …
The recent easing of global supply chain problems could put some downward pressure on euro-zone goods inflation soon. But equipment shortages are still a major problem for manufacturers, while their price expectations are high. And with the labour …
3rd November 2022
Labour market still strong but likely to soften from here The fall in the euro-zone unemployment rate to 6.6% in September shows that the labour market remained very tight even as the economy headed towards recession. We expect unemployment to rise in …
Today’s decision by the Norges Bank to slow the pace of rate hikes is the beginning of the end for its tightening cycle. But we don’t expect a pivot towards interest rate cuts next year. The Bank signalled at its last meeting that after raising its policy …
Falling inflation will allow SNB to raise rates less than others The decline in both core and headline inflation in October supports our view that Switzerland has passed peak inflation. We expect further falls in the coming months which will allow the …
Double-digit inflation will keep ECB hawkish The increase in euro-zone GDP in Q3 does not alter our view that the euro-zone is on the cusp of a recession. But with inflation having jumped to well over 10%, the ECB will prioritise price stability and press …
31st October 2022
In general we think the data released this week are consistent with our three key calls on the euro-zone. The first is that the region is heading for a deeper recession than most anticipate. Our forecast is for a 1.8% decline in GDP in 2023 is below both …
28th October 2022
Strong inflation prints will keep ECB in tightening mode Renewed inflation shockers in Germany, France and Italy in October pour cold water on expectations that the ECB’s softer tone on rate hikes yesterday will pave the way for a “pivot”. We continue to …
We published our Q4 Nordic & Swiss Economic Outlook this week. The key points are that we expect Switzerland, Sweden and Denmark to suffer recessions, while Norway might escape with only a sharp slowdown. But inflation will remain high in the Nordics and …
Economy contracting, price pressures intense The further fall in the European Commission’s economic sentiment indicator in October adds to the evidence that the euro-zone economy is contracting. But the labour market still looks tight and firms’ price …
Recession postponed The unexpected resilience of Germany’s economy in Q3, with GDP rising 0.3% q/q, has probably only postponed the recession which we now expect to begin in the fourth quarter. Business surveys show that activity has already begun to …
Slowing before entering recession The modest economic growth recorded by both France and Spain in Q3 was broadly in line with expectations and represents a significant slowdown from the second quarter. We expect both economies to go into recession in the …
The Norges Bank signalled in September that it intended to slow the pace of tightening, implying that it would hike by 25bp at the meeting next week. But with inflation data since then again coming in higher than expected, we think the Bank will opt for …
27th October 2022
After raising rates by 75bp today, the ECB laid the groundwork for a slower pace of tightening to come. But we still think that the deposit rate will reach 3% next year. And while the Bank will set out some “key principles” for QT in December, we doubt …
ECB’s work is far from done The ECB is very likely to follow today’s 75bp rate hike with further aggressive increases in the coming months, even if we are right that the forthcoming recession will be deeper than most expect. The decision to maintain the …
Money and lending growth accelerated in September, but the latest Bank Lending Survey revealed that there was a sharp drop in loan demand and that banks have become much more cautious about lending. With the cost of borrowing likely to keep rising, …
26th October 2022
Prospects for economic activity have deteriorated further in recent months as headwinds to growth have become stronger. Inflation looks set to remain high for longer, eroding households’ real incomes; monetary policy is being tightened further and …
25th October 2022
Yet more evidence of recession The Ifo Business Climate Index held up better than expected in October but was still extremely low. With other business surveys also persistently weak, we think Germany will experience the deepest recession among euro-zone …
Note: We’ll be discussing key takeaways from our Outlook published last week on Tuesday, 25th October. Register here . Italy’s new government may initially steer clear of major fiscal loosening, but it will have to provide some more support to cushion the …
24th October 2022
Note: We’ll be discussing key takeaways from our Outlook published earlier in the week on Tuesday, 25th October. Register here . PMIs signal recession and high inflation The flash PMIs for October provide yet more evidence that the euro-zone is sliding …
PMIs show recession and high inflation The flash PMIs for October provide yet more evidence that the euro-zone is sliding into quite a deep recession but that inflationary pressures remain intense. The decline in the flash euro-zone Composite PMI from …
Unemployment still low in September Data for Sweden in September show the labour market remained tight. Admittedly, employment fell on the month and the unemployment rate edged up from 6.9% in August to 7.0%. (See Chart 1.) But the monthly numbers are …
21st October 2022
The main message from our latest quarterly Euro-zone Economic Outlook , which we published this week, is that we now expect the euro-zone to experience an even more extreme case of stagflation. We now forecast both headline and core inflation to average …
It is a close call but we think a 100bp hike most likely next week. Further rate hikes will follow, bringing the deposit rate to a peak of 3%. But the hawks’ hopes to shrink the balance sheet will go unfulfilled. The ECB is certain to opt for another …
20th October 2022
We don’t think COP27 is likely to achieve much. At the heart of our new Climate Economics coverage is the idea that economic and market forces – far more than government diktat – will drive the green transition. As the challenge of tackling climate change …
Euro-zone Drop-In: Deeper recession and more persistent inflation …
Overview – The euro-zone is on the cusp of a significant recession due to a severe squeeze on households’ real incomes, rising interest rates and weak external demand. We now think GDP will fall for the next three quarters and will recover only …
Inflation data show that price pressures are broad based Final inflation data for September confirm that price pressures are very strong and broad-based. While headline inflation should fall next year as energy and food inflation drop back, the core …
19th October 2022
Weak sentiment points firmly to recession Although the headline ZEW investor sentiment indicator edged up in October it is still at a very low level, while the current conditions index – which is more closely corelated with GDP – actually fell by more …
18th October 2022
Governing Council members were out in force this week giving their euro cent’s worth on the monetary policy outlook. Sifting through the various comments, there are three main takeaways. First, even the most hawkish are not prepared, in public at least, …
14th October 2022
Sweden: consumer prices vs house prices September’s consumer price data were very strong. But there has been a sharp slowdown in the housing market which could mean that the Riksbank’s tightening cycle comes to an end soon. The increase in headline …
Core inflation to remain uncomfortably high The reversal of temporary measures to reduce travel costs played a big role in the surge in German inflation in September. But underlying price pressures remain strong and broad based. We continue to expect that …
13th October 2022
Another bigger-than-expected rise in core inflation The large increase in inflation in September, to 10.8%, confirms that the Riksbank will press on with its rapid monetary policy tightening. For now we have assumed that rates will peak at 2.5% in …
On the cusp of recession The 1.5% m/m increase in industrial production in August was partly due to an out-sized rise in Ireland and was not enough to reverse the fall in July. All the evidence suggests that euro-zone industry is heading for a …
12th October 2022
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
Strong inflation likely to prompt another 50bp Norges Bank hike The Norges Bank signalled at its last meeting that it would slow the pace of rate hikes, but the strength of September’s inflation data – published this morning – makes another 50p hike …
10th October 2022
