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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
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. …
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. …
1st September 2022
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 …
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 …
