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European gas prices have been on a rollercoaster ride over the past month, rising to a peak of €340/MWh before falling back to around €240 to leave them about 50% higher than at the time of the ECB’s last meeting. That has increased the risk of …
7th September 2022
Recession looks inevitable The 0.8% q/q increase in euro-zone GDP in Q2 will be as good as it gets for a long time. A recession looks inevitable in the coming quarters and the subsequent recovery is likely to be sluggish. The upward revision to GDP growth …
No respite in sight for German industry German industrial output fell a bit less than anticipated in July but that was mainly due to a rebound in construction activity, while there were signs that manufacturing production is starting to be hit hard by the …
No respite in sight for German industry German industrial output fell a bit less than anticipated in July but that was mainly due to a rebound in construction activity and there were signs that manufacturing production is starting to be hit hard by the …
We continue to expect euro-zone “peripheral” spreads to rise over the remainder of the year, owing to a combination of deteriorating appetite for risk, higher policy rates, and ambiguity about the ECB’s willingness to support the peripheral bond market. …
5th September 2022
Gazprom’s decision to shut Nord Stream 1 indefinitely has added to the risks facing Germany’s economy, but the size of the economic damage is still highly uncertain. And the €65bn fiscal package announced by the government will soften the blow to …
Small rise in retail sales, but worse to come The small rise in euro-zone retail sales volumes in July only partly reversed the previous month’s big fall, and with consumer confidence very weak and the final PMI surveys for August suggesting that price …
SNB with more work to do In the week when Joel Wicki was crowned “Schwingen King” in the national Swiss wrestling championships, SNB Chairman Thomas Jordan used his speech at Jackson Hole to reiterate his intention to grapple inflation into submission. Of …
2nd September 2022
Sentiment towards the euro-zone has fallen to new lows. The Eurostoxx equity index lost 4% of its value this week, the spread between Italian and German bonds widened, and euro-zone sovereign bonds reported their biggest monthly price fall on record. …
We expect the looming recession in the euro-zone to cause the region’s unemployment rate to rise to 7.5% by the middle of next year. But this would still be historically low and is unlikely to be sufficient to offset the upward pressure on wages …
1st September 2022
ECB likely to raise rates by 75bp next week. Further bumper rate hikes to follow even as economy falls into recession. But the hawks’ hopes to shrink the balance sheet will go unfulfilled. There is a case for the ECB to raise rates by 1% next week. …
Labour market recovery on borrowed time The fall in the euro-zone unemployment rate in July to a record low of 6.6% is likely to be as good as it gets. The region faces a difficult winter and recession looms. So the jobless rate is likely to rise from …
Swiss inflation at 29-year high At 3.5% in August, up from +3.4% in July, Swiss inflation was a touch higher than expected (CE 3.3%, consensus 3.4%) and reached its highest level since August 1993. (See Chart 1.) In contrast, the core inflation rate was …
Inflation to hit 10% before year end The further increases in headline and core inflation in August, and likelihood that they will keep rising, will add to the pressure on the ECB to step up the pace of tightening. The balance of probabilities is shifting …
31st August 2022
Onwards and upwards Germany’s inflation rate resumed its upward trend in August. We expect it to be around, or above, 10% in October after the temporary measures which have suppressed prices since June are withdrawn and a gas levy is introduced. Moreover, …
30th August 2022
Further decline in confidence as high energy prices weigh The further decline in the EC Economic Sentiment Indicator in August echoes the message from the other business surveys that the euro-zone economy is on the verge of recession as sky-high energy …
While attention has understandably focused on Fed Chair Jerome Powell’s Jackson Hole speech made last Friday, there were also important interventions over the weekend by ECB policymakers. These suggest that the risks to our above-consensus forecasts for …
29th August 2022
Martin Flodén sets his stall out in advance Martin Flodén struck a hawkish note in a presentation in Stockholm on Wednesday, noting that inflation has been “quite a lot higher” over the summer than the Riksbank had expected and that it is clear the …
26th August 2022
This week brought yet more doom and gloom for the euro-zone economy and from a now all-too-familiar source: wholesale energy prices. The announcement of additional maintenance for Nordstream 1 at the end of this month aggravated concerns about energy …
The surge in natural gas prices is a key reason why we expect Italy to fall into recession soon. If Russia stopped exporting gas to Europe entirely, Italy would suffer more than most but less than Germany. Even before the latest surge this month, the …
The >10,000 word account of the ECB’s July meeting confirms that a large majority of policymakers favoured a 50bps rate hike and are focused more on their mandate to contain inflation than on trying to head off recession. We expect two further 50bp …
25th August 2022
We expect the spread between the yields of 10-year German and Swiss government bonds to widen further over the remainder of this year. The spread between 10-year German and Swiss government bond yields has widened sharply this year , with the former …
Recession now a certainty Although the Ifo Business Climate Index edged down only trivially in August it remained at a very low level and is consistent with the economy contracting sharply. After GDP expanded by a mere 0.1% q/q in Q2, we think Germany is …
Recession now a certainty Although the Ifo Business Climate Index edged down only trivially in August it remained at a very low level consistent with the economy contracting. After expanding by a mere 0.1% q/q in Q2, we think the German economy is heading …
One left-field option for alleviating Europe’s gas crisis that has been doing the rounds is the potential for asking Norway to discount the price of its gas exports. This Update looks at eight key questions on the topic. In short, an agreement would …
24th August 2022
The continued surge in European gas prices, and likelihood that they will remain extremely high, means that the euro-zone will probably suffer a deeper recession than we had previously anticipated. It will also push inflation up to 10% before the end of …
France’s low energy inflation rate relative to those of its neighbours reflects government policies that have limited the increase in retail prices even as wholesale prices have risen. This will contain the hit to household spending, but at a …
For most major euro-zone countries the terms of trade shock from higher gas prices this year will be bigger than both the 1974 and 1979 oil shocks. How this plays out in the coming months depends on many factors and will vary between countries – but …
23rd August 2022
PMIs suggest that recession has begun August’s flash PMIs suggest that the euro-zone economy is now contracting. While global price pressures have become less intense in the past few months as supply chain problems have eased, soaring European gas prices …
PMIs signal recession has begun August’s flash PMIs suggest that the euro-zone economy is now contracting. While price pressures have become less intense in the past few months as global supply chain problems have eased, soaring gas prices and strong …
Norway's GDP back to pre-crisis trend Having had a relatively good pandemic, Norway is now one of the few European countries to benefit from the energy crisis. We learnt this week that mainland GDP increased by 0.3% in June. Although this was a little …
19th August 2022
Recession just round the corner The second estimate of euro-zone GDP in Q2, published this week, confirmed that the economy grew at a decent pace in the first half of the year. (See here .) However, this is unlikely to last. The construction sector is …
Materials and labour shortages are weighing on construction activity and, although those headwinds may ease over the rest of the year, tighter monetary policy is likely to cause activity to fall. The latest surveys are consistent with the sector …
18th August 2022
Underlying inflation still rising Final inflation data for July underline that price pressures remain strong and broad-based. With wholesale natural gas and electricity prices having surged again in the weeks since July, retail gas and electricity prices …
Following today’s decision by the Norges Bank to raise its policy rate by 50bp at the second consecutive meeting, we now expect the Bank to make it a hat-trick of 50bp hikes at the next meeting in September. With price pressures looking strong, further …
As good as it gets The chunky rise in euro-zone GDP in Q2 reflected the re-opening of the services sector and was accompanied by a further increase in employment. But a combination of high inflation, rising interest rates and the energy crisis will push …
17th August 2022
Investor sentiment points recession The ZEW survey fell again in August and is at a level consistent with the economy contracting. We now think a recession is unavoidable in the second half of this year as the impact of high energy prices on both …
16th August 2022
Drought conditions add to woes By far the biggest problem afflicting Europe’s energy markets is Russia’s decision to cut its natural gas exports, but extreme weather conditions are making things worse. Water levels on the Rhine are already close to their …
12th August 2022
Until recently, Norway appeared well positioned to cope with Europe’s energy crisis and to help other European countries through it too. It has little exposure to Russian supply and, as a net exporter of oil and gas, it has benefited from rising …
Further rise in core inflation will keep Riksbank in hawkish mode The decline in CPIF inflation in July will be of limited comfort to policymakers given that the core rate, excluding energy, jumped to 6.6%. We still think the Riksbank may raise its repo …
The Norges Bank said in June that it was likely to raise its policy rate by 25bp at its meeting next week, but we now think it is more likely to go for a 50bp hike. Whatever it decides on interest rates, we expect it to signal strongly that further hikes …
11th August 2022
We think the euro-zone will soon fall into recession as high inflation, tighter monetary policy and weak global growth take their toll. While the economy should recover next year, the rebound will be held back by a lack of policy support. What’s more, we …
The fall in the Rhine’s water level is a small problem for German industry compared to the gas crisis, or indeed the recent shortage of semiconductors. But if it persists until December it could subtract 0.2ppts from GDP in Q3 and Q4 and add a touch to …
10th August 2022
Chances of another 50 bp hike next week rising The increase in CPI-ATE to a record-high will have raised eyebrows at the Norges Bank. We think another 50 basis point hike at next week’s interim meeting is likely. The increase in the headline inflation …
An end to Russian gas exports to Europe would prompt us to forecast a deeper recession in the euro-zone this winter than we currently anticipate. The hit would come partly through higher inflation, which would further squeeze real incomes, and partly …
9th August 2022
Activity turning downwards The data published this week add to the evidence that a recession is just around the corner. Retail sales fell sharply in June and are on a clear downward trajectory. Admittedly, that might partly be because households are …
5th August 2022
According to Google it’s “kanariefugl i kulminen” Against the backdrop of heightened tensions between China and Taiwan, and ongoing question marks over whether the US economy is in recession or not, it’s fair to say that the precipitous plunge in the …
Manufacturing conditions to get tougher The small increase in German industrial production in June was not enough to reverse declines earlier in the year and left output well below pre-pandemic levels. Things are going to get more difficult in the second …
Euro-zone GDP increased by more than we had expected in Q2 as reopening effects boosted the services sector, particularly in the southern countries. But things have already taken a turn for the worse. Business surveys are pointing to a big drop in …
4th August 2022
