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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 …
12th August 2022
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
A disappointing end to Q2 The sharp fall in euro-zone retail sales in June means sales contracted in Q2 as a whole. With the final PMI surveys pointing to price pressures continuing to intensify and demand softening, we think household spending will …
3rd August 2022
Inflation appears to have peaked Swiss inflation appears to have peaked in July at an enviably low level compared to that of most other advanced economies. That said, the core rate reached its highest level in more than two decades, which is likely to …
Labour market to remain tight In June, the number of unemployed people rose in the euro-zone for the first time in 14 months. Nevertheless, we expect the labour market to remain tight even as the economy heads into recession, maintaining the upward …
1st August 2022
Gazprom’s announcement this week that it is reducing the supply of gas through Nord Stream 1 to only a fifth of its normal capacity has pushed European natural gas prices up from €125/MWh to €190/MWh over the past week, and will further increase inflation …
29th July 2022
A tournament to forgot for Nordic football fans Of course, Sweden measures up well against the UK in many ways, including on the economic and political fronts. After all, the estimated 1.4% q/q rise in Swedish GDP in Q2 (data released on Thursday) is in a …
Re-opening boost to fade, fast The chunky increase in euro-zone GDP in Q2 was due to the re-opening of the services sector which has masked a deterioration in most other parts of the economy. We expect a triple whammy of high inflation, tighter monetary …
Rising core inflation adds to pressure on ECB With headline and core inflation rising more than expected yet again, the case for the ECB to pursue further aggressive tightening of interest rates is unassailable. A 50bp hike in September now looks nailed …
Another upside surprise The increase in German inflation to 8.5% in July was higher than most anticipated and suggests that euro-zone inflation will also come in above expectations tomorrow. This will support what we assume is the majority view on the ECB …
28th July 2022
Household consumption has been weaker in Spain than in other big euro-zone economies, reflecting the slow rebound in tourism, more limited fiscal support and higher inflation. The latter is set to persist, while rising interest rates are a new headwind. …
Downbeat surveys raise the spectre of recession The bigger-than-expected decline in the EC Economic Sentiment Indicator in July adds to a growing list of indicators pointing to activity slowing markedly in July. With the region’s gas supply now reduced …
Q2 GDP to prove a high-water mark until late 2023 The 1.4% q/q increase in Swedish GDP in Q2 poses upside risks to our below-consensus forecast for GDP growth in 2022. But with a recession on the cards in late 2022 and early 2023, activity is unlikely to …
Bank lending growth accelerated further in June, but lenders expect the demand for loans to slow sharply in the coming months, adding to the reasons to expect the economy to fall into recession. Meanwhile, banks in the periphery are tightening the Ts and …
27th July 2022
The news today that Gazprom will further reduce its natural gas supply to Europe increases the likelihood of recessions in the euro-zone, UK and parts of Emerging Europe. It also supports our view that inflation pressures will be relatively persistent in …
26th July 2022
Italy’s next government is unlikely to bring the country’s future in the euro-zone into doubt, in a repeat of the turmoil that we saw after the 2018 election. But it will probably run looser fiscal policy and find it more difficult to pass reforms. If it …
Heading for recession The further decline in the German Ifo Business Climate Index (BCI) in July adds to the evidence that the German economy is on the brink of a recession as high energy prices and worries about energy security take their toll on firms’ …
25th July 2022
Almost exactly ten years on from Mario Draghi’s “whatever it takes” speech, the ECB this week had another attempt at keeping a lid on peripheral bond spreads as it kicked off its first tightening cycle in more than a decade with a bigger-than-expected …
22nd July 2022
Danish policymakers won’t be rushed Given that Denmark’s Nationalbank operates an exchange rate peg with the euro, it was no surprise to see it mirror the 50bp rate hike by the ECB on Thursday afternoon. If anything, the only surprise was that it took …
Euro-zone on brink of recession July’s flash PMIs suggest that the euro-zone is teetering on the brink of recession due to slumping demand and rising costs while inflationary pressures remain intense. The ECB will have to follow up on yesterday’s historic …
The ECB’s 50bp rate hike today is likely to be the first move in a sustained interest rate hiking cycle which we think will bring the deposit rate to around 2% next year. We also think the Bank will at some point have to use its new asset purchase …
21st July 2022
The near-term economic outlook has deteriorated in recent months and Switzerland, Sweden, and Denmark are set for mild recessions in late 2022 and early 2023. This is partly a function of external weakness; as highly open economies, the recession in the …
It looks like Italy is heading for an early general election. While that won’t necessarily cause an economic and financial crisis, bond spreads are likely to widen regardless of what the ECB announces later today. After the Lega, Five Star Movement and …
Strength of inflation will push ECB into aggressive tightening Final inflation data for June confirm that price pressures are very strong. Whether or not the ECB hikes by 50bp on Thursday, we think it will be the beginning of an aggressive 12 months of …
19th July 2022
Monday went from bad to worse in Norway Monday proved a day to forget for Norwegian economists and football fans, with another increase in core inflation in the morning compounded by an 8-nil drubbing by England in the evening. Admittedly, the increase in …
15th July 2022
New forecasts We published our quarterly European Economic Outlook this week, which contains all of our latest forecasts for the euro-zone, its member states and the ECB. In this Weekly , we will highlight three of our key calls on the economic outlook. …
ECB will raise its rates by 25bp and signal 50bp likely in September. Deposit rate will rise to +1.25% by year-end and +2.0% next year. Policymakers may not agree anti-fragmentation tool next week. ECB policymakers are likely to follow through on their …
14th July 2022
Overview – The euro-zone looks on course to fall into a mild recession in the coming quarters. Real incomes are falling, business sentiment has plummeted and growth in the region’s export markets is slowing. Nevertheless, the labour market is likely to …
If the return of political instability in Italy leads to an early election, government bond spreads are likely to widen, whether or not the ECB agrees the details of the Transmission Protection Mechanism next week. The Five Star Movement has abstained …
Stronger-than-expected inflation strengthens case for front loading hikes The stronger-than-expected increase in Swedish inflation in June will only strengthen the resolve of policymakers to squeeze inflation out of the system and raises the chance that …
Outlook for manufacturing weak, despite increase in production May’s 0.8% monthly increase in euro-zone industrial production was largely due to a huge rise in Ireland’s output. Excluding Ireland, production decreased slightly in May. Moreover, …
13th July 2022
The euro hit parity against the US dollar today and we wouldn’t be surprised if it falls further. While we think it would take big moves in the trade-weighted exchange rate for the ECB to intervene in FX markets, at the margin the euro’s fall adds to the …
12th July 2022
Another 50bp hike looking tempting for the Norges Bank The services-driven increase in Norway’s core inflation rate in June increases the chance that the Norges Bank will raise its policy rate by another 50bps at its August policy meeting. The increase in …
11th July 2022
Headwinds to strengthen in H2 The 0.7% m/m increase in Statistics Sweden’s GDP Indicator in May (data released on Wednesday) was stronger than we had expected and means the economy is all but certain to have grown more quickly in Q2 than the 0.6% q/q rise …
8th July 2022
At time of writing, the euro is at its weakest in almost two decades, hovering above our end-year forecast of parity with the US dollar. As our Global Markets team explained earlier this week in the Capital Daily , the euro’s depreciation has reflected …
Very high inflation and low unemployment are driving German unions to seek big pay rises in this year’s collective negotiations. We think nominal pay growth will be in the region of 4-5% this year and 3-4% in 2023. Although this would result in …
7th July 2022
German industry probably contracted in Q2 May’s small rise in industrial production in Germany was not big enough to change our view that output in the sector is likely to have declined in the second quarter. And with the timelier surveys softening in …
The latest data suggest that underlying inflationary pressures in the euro-zone remain intense. Although core inflation edged down from 3.8% in May to 3.7% in June, this appeared to be down to temporary policy changes in Germany that will weigh on …
6th July 2022
Retail sales becoming a drag on growth The small increase in euro-zone retail sales in May, after a steep fall in April, suggests that high inflation remains a drag on consumption. Although re-opening effects may have boosted consumption in Q2, the …
It seems most likely that Italy will be able to put its public debt ratio on a gradual downward trajectory, even as interest rates rise, by running primary budget surpluses. But if 10-year government bond yields rise above 5% and stay there, the necessary …
5th July 2022
Activity slowing, prices rising June’s final Composite PMIs confirmed the message from the flash release that activity is softening and that firms expect weaker conditions ahead. And price pressures remain intense throughout the euro-zone. The final …
