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A raft of economic data for Sweden published this week added to the evidence that its economy is slowing and, like most of Europe, heading for a recession this winter. The 1.3% fall in Statistics Sweden’s monthly GDP indicator in August was the biggest …
7th October 2022
Strong case for even bigger rate increase The case is growing for the ECB to step up the pace of tightening further at its meeting in three weeks. The account of last month’s ECB meeting, published on Thursday, showed that policymakers expect to keep …
Industrial contraction to drag Germany into recession The larger-than-expected drop in German industrial production in August was driven mainly by some volatile components and, together with some upward revisions to July’s data, suggests industrial …
Industrial contraction to drag Germany into recession The larger-than-expected drop in German industrial production in August was driven mainly by some volatile components and suggests industrial output may have held up better than we had anticipated in …
A recession has looked unavoidable for some time and we now think it will be deeper than most anticipate. Manufacturing output is already declining and services activity is slowing. What’s more, inflation is in double-digit territory and does not seem …
6th October 2022
Account shows hawks still ruling the roost The account of the September ECB meeting confirms that there was a strong consensus in favour of rapid policy normalisation. Since the September meeting, inflation has again increased more than expected, …
Retail sales sliding The 2% year-on-year decline in euro-zone retail sales in August will probably look mild by the end of the year. Measures of consumer confidence point to sales falling much further, which seems quite plausible given that nominal wage …
The low level of inflation in Switzerland compared to the euro-zone mainly reflects smaller contributions from energy and food. But core inflation is lower too, helped by the exchange rate and structural factors. Accordingly, the SNB won’t need to have …
5th October 2022
Germany’s huge off-budget facility designed to compensate households and businesses for the increase in energy prices is bigger than measures announced elsewhere. However, we don’t expect actual spending to be that high, and nor do we think it will be …
Activity falling, price pressures increasing The final euro-zone PMIs for September suggested that price pressures in the region are not yet starting to ease, even as activity appears to be in decline. We think some economies, including Germany, are …
Swiss inflation appears to have peaked The fall in the headline rate of inflation in Switzerland in September suggests that price pressures may have peaked there, which is consistent with the message from the latest business surveys. Meanwhile, the …
3rd October 2022
While we don’t expect euro-zone governments to engage in UK-style large discretionary fiscal loosening, Italy’s weak public finances and/or the ECB’s likely reluctance to intervene in government bond markets may well turn out to be the source of turmoil …
30th September 2022
This week we got yet more data showing that economies in the region are slowing. Sweden’s Economic Tendency Indicator for September, published on Wednesday, plummeted and suggested that growth has abruptly stalled. (See Chart 1.) And other indicators …
Inflation hits double digits and upside risks remain The jump in the euro-zone’s headline inflation rate in September into double digits will be of grave concern to the ECB. Despite the weak economic outlook, we expect the Bank to prioritise inflation and …
Inflation hits double digits and upside risks remain The jump in the euro-zone’s headline inflation rate in September into double digits will be of grave concern to the ECB. Despite the weak economic outlook we expect the Bank to prioritise inflation and …
Inflation headache getting worse The sharp increase in Germany’s headline inflation in September cannot be explained by temporary factors. With business surveys showing that price pressure remain strong and the labour market likely to remain tight despite …
29th September 2022
Sentiment falls to a two-year low as the energy crisis weighs on confidence The EC Economic Sentiment Indicator fell to a two-year low in September with business surveys echoing the message from more timely surveys that activity has slowed sharply. With …
The UK financial crisis is a self-inflicted wound, but the sell-off in gilts underlines that there is less fiscal room for manoeuvre than there was when policy rates were close to zero. We think the ECB is likely to resume asset purchases too before …
28th September 2022
The UK government has not been alone in announcing new fiscal measures in recent days. The French government’s plan to stabilise the budget deficit at 5% of GDP next year looks optimistic, given its overly rosy growth forecasts and continued support for …
27th September 2022
Slump in Ifo signals deepening recession The further big fall in the Ifo Business Climate Index (BCI) in September adds to the gloom surrounding the German economy as worries about energy prices and declining household real incomes hit confidence hard. …
26th September 2022
Slump in Ifo signals Germany in recession The further big fall in the Ifo Business Climate Index (BCI) in September adds to the gloom surrounding the German economy as worries about energy prices and declining household real incomes dent business …
Right-wing victory not immediate concern, but long-term risks remain The widely-anticipated right-wing coalition victory in Italy’s general election does not pose an immediate risk to bond markets. However, the fact that the country will be governed by a …
In a quiet week for euro-zone economic data, attention has focused on the bumper interest rate hikes by central banks elsewhere, including the Fed , Bank of England , the Riksbank , the SNB and the Norges Bank . The scale of the rate hikes and the …
23rd September 2022
In what has proven to be an action-packed week for major central banks, those in the Nordics and the SNB kept their end up and delivered historically large rate rises. And more tightening is likely from all three before the year is out. The 100bp rate …
PMIs point to recession and strong price pressures September’s PMI surveys are consistent with a small decline in euro-zone GDP in Q3. And the increases in the prices indices suggest that inflation is not yet at a turning point. The fall in the …
PMIs point to recession and still strong price pressures September’s PMI surveys are consistent with a small decline in euro-zone GDP in Q3. And the increases in the prices indices suggest that inflation is not yet at a turning point. The further fall in …
With Italy’s general election scheduled to take place this weekend, this Update answers six key questions about what to expect in the days and months following the vote. 1. When will we know the election results? The first exit polls will be released …
22nd September 2022
Direct FX intervention by the ECB to support the euro is not out of the question, but we think that it would take a much bigger depreciation of the single currency to force policymakers to act. The news today that policymakers in Japan have intervened …
The strength and breadth of inflationary pressure in the euro-zone, together with policymakers’ determination to bring inflation down, has prompted us to revise our interest rate forecasts up. We now forecast the ECB’s deposit rate to peak at 3% even …
Following today’s 50bp increase, we think the Norges Bank is most likely to hike by 50bp again in November. But its tightening cycle will soon be over, with the policy rate peaking at around 3%. Today’s 50bp rate hike, taking the policy rate to a …
The Swiss National Bank is likely to follow today’s 75bp rate rise with further increases at its next couple of meetings to keep a lid on inflationary pressure. But we still think investors have got ahead of themselves in expecting the rate to peak at …
More tightening to come Even after today’s widely-expected 50bp rate increase by the Norges Bank, taking the policy rate to a 10-year high of 2.25%, the Bank has not finished tightening yet. The policy statement accompanying the rate hike said that “the …
SNB adds to the crop of bumper rate rises The Swiss National Bank continued its tightening cycle today, delivering a 75bp rate hike as we expected. Further rate rises are likely at the next couple of meetings, but we think that investors have got ahead of …
Even after raising its policy rate by 100bp today, the Riksbank signalled that its tightening cycle has some way to go. We expect another large hike at its final meeting of the year in November, perhaps by 75bp. Next year, the beginning of QT will ease …
20th September 2022
Data released this week brought yet more evidence that the euro-zone is heading for recession. The energy crisis was already weighing on industry in July, with output in the sector contracting sharply, especially among energy-intensive producers. And …
16th September 2022
Not a lot appears to link electricity, hot drinks, furniture and eggs, but this week all four made it into Statistics Sweden’s CPI categories with the highest annual inflation rates in August. The message from this week’s inflation release for August …
Strength and breadth of price pressures will lead to further large rate hikes Final inflation data for August confirm that price pressures are very strong and broad-based. While energy and food inflation are particularly high, measures of underlying and …
Next week, we expect the Swiss National Bank, Riksbank and Norges Bank to raise interest rates aggressively. The SNB and the Riksbank both look set to raise rates by 75bp, and we would not rule out a bumper 100bp from the latter. But the Norges Bank is …
15th September 2022
Italy’s right-wing coalition, which looks set to win the upcoming general election, will probably run slightly looser fiscal policy than Draghi’s government, but clashes with the EU similar to those in 2011 and 2018 are unlikely. Instead, delays on …
Strong pay growth in first half of 2022 The pick-up in euro-zone hourly wage costs in Q2, along with a big upward revision to Q1, on the face of it suggests that pay pressures in the region continued to build. The detail provides a more nuanced picture, …
Consumer price inflation has continued to accelerate in Switzerland and across the Nordics, adding to the pressure on central banks to tighten monetary policy more aggressively. In Switzerland, headline inflation reached 3.5% in August, which is low by …
14th September 2022
A weak start to Q3 July’s 2.3% monthly decline in euro-zone industrial production was largely due to a big fall in Ireland’s output. But even excluding Ireland, production decreased in July, with energy-intensive industries struggling. The surveys suggest …
Further rise in core inflation increases chance of 75bp hike The continued increase in inflation in August, with the core rate hitting its highest level since December 1991, will keep the Riksbank in hawkish mode. We had expected the Bank to raise its …
More signs of recession in Germany The larger-than-expected fall in the German ZEW sentiment indicator in September adds to the evidence that the German economy is already contracting. Meanwhile, the final inflation figures for August, also published this …
13th September 2022
European policymakers have been discussing how to tackle skyrocketing energy prices in the region to ease the financial pain for households and firms this winter. In this Update , we answer five key questions about Europe’s plans to deal with surging …
12th September 2022
Reports that the ECB will soon start debating QT add to the risks facing euro-zone government bond markets. While the Bank could still expand its holdings of peripheral sovereign debt through the PEPP, QT would raise the bar even further for it to …
Other central banks to follow ECB’s lead The ECB isn’t the only European central bank in hawkish mood. We expect further rate hikes in Switzerland and the Nordics this year. Unsurprisingly, the Danish central bank matched the ECB’s 75bp hike on Thursday, …
9th September 2022
The ECB went big this week, delivering on Thursday a 75bp rate rise, which President Lagarde described in the post-meeting press conference as a “frontloading step in [the Bank’s] journey of normalisation”. While she wouldn’t be drawn explicitly on how …
High inflation to prompt another 50bp Norges Bank hike The continued increase in core inflation in August took it further above the Norges Bank’s target. With policymakers in hawkish mood, we expect another 50bp rate hike at the next meeting in two weeks. …
The ECB is almost certain to follow today’s 75bp rate hike with further aggressive increases in the coming months. We doubt that even a recession would cause the Bank to halt rate hikes. Against that backdrop, and with uncertainty about policymakers’ …
8th September 2022
