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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 …
24th October 2022
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
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
