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We said in our Drop-in on Tuesday that there would be a high bar to clear for the ECB to change its plans and raise interest rates this year. Three days later, after some strong inflation data, that bar now seems to have been cleared! January’s inflation …
4th February 2022
Today’s appointment of Jens Stoltenberg as the new Governor of the Norges Bank is a slap in the face for the bus driver, plumber, and baker who had applied for the job, as well as the two thirds of Norwegians that favoured Ida Wolden Bache to succeed …
A disappointing end to 2021 The fall in euro-zone retail sales volumes in December means that sales growth slowed significantly in Q4 as a whole. While we expect consumer spending to recover over the coming months when restrictions are fully lifted, …
Most of the surprise in January’s inflation data came from energy inflation. But core inflation was also unexpectedly strong. With underlying price pressures continuing to build, there is a good chance that the ECB raises its medium-term inflation …
3rd February 2022
While the Riksbank is likely to leave the repo rate unchanged at zero next Thursday (10 th February), a hawkish shift is now long overdue. We have pencilled in a 25bp repo rate hike in November 2022, which is ahead of the economic consensus, but there is …
While the ECB did not change its policy settings today, President Lagarde more than made up for it in the press conference. We now think the ECB will decide in March to taper its asset purchases faster than previously indicated, and are pencilling in 50bp …
Omicron hit to services activity The final Composite PMIs for January confirm that the euro-zone economy started 2022 on a weak note but the improving health situation suggests that growth will pick back up over the rest of the quarter. The PMIs also …
Inflation shock puts pressure on ECB January’s inflation data support our view that the ECB will soon forecast inflation to be at its target over the medium term. Accordingly, we think that policymakers will end net asset purchases completely this year …
2nd February 2022
Spare capacity dwindling The euro-zone unemployment rate fell yet again in December, to just 7.0%, capping off a remarkable year for the region’s labour market. Most of the spare capacity that built up during the pandemic now seems to have disappeared, …
1st February 2022
Banks supporting the recovery The Q4 ECB Bank Lending Survey suggests that banks are contributing positively to the region’s economic recovery. It also suggests that, while house prices are rising rapidly, risks to financial stability are mounting much …
Strong industrial activity to offset services softness The continued resilience of the manufacturing PMIs in Switzerland and Sweden in January indicates that industry will have supported activity through a restrictions-driven soft patch for services in …
Higher-than-expected inflation will give ECB pause for thought The smaller-than-anticipated fall in Germany’s inflation rate, and increase in core inflation in Portugal and Spain, suggest that underlying price pressures are continuing to build. Euro-zone …
31st January 2022
The Socialist Party’s victory in yesterday’s election means there will be no substantial change in economic policy, but the government should be more stable. In any case, Portugal’s economy is set to grow rapidly this year, from a fairly low base, as the …
Weak end to 2021 but Omicron hit set to be short-lived The small increase in euro-zone GDP in Q4 came as no surprise given the country-level data published last week and shows that the euro-zone economy was struggling at the end of last year. But …
By re-electing Sergio Mattarella as president and ensuring that Mario Draghi remains prime minister, Italy’s political establishment has achieved what appears to be the best possible outcome. The Recovery Plan should remain on track and Mr Draghi could …
The raft of country-level Q4 GDP data published this morning point to the euro-zone eking out some marginal growth at the end of last year, with Germany contracting by 0.7% q/q. (See here and here .) Nor does the euro-zone appear to have made a strong …
28th January 2022
Stage set for Riksbank mea culpa in February The 0.3% m/m increase in Sweden’s GDP Indicator in December, released this morning, left it a whopping 4.7% higher than its February 2020 level. (See Chart 1.) We will have to wait until the 28 th February for …
Supply-shortages continuing to bite The EC Economic Sentiment Indicator weakened in January as the Omicron wave took a toll on economic activity, particularly in the services sector. The survey also showed that supply shortages remained acute and …
Weak end to last year but better start to 2022 The decline in economic activity at the end of last year left GDP well below its pre-pandemic level and much weaker than in other major advanced economies. Activity seems to have stabilised in January so …
Stronger than expected Both the French and Spanish economies ended 2021 on a strong note, but for different reasons. In France, domestic demand pushed output above its pre-virus level, a boon for President Macron ahead of April’s election. By contrast, a …
Omicron, market sell-off and Ukraine tensions won’t worry the ECB unduly. Lagarde to stress uncertainty over inflation and note rapid house prices increases. We think the Bank will prepare the ground for limited rate hikes next year. The impact of Omicron …
27th January 2022
The re-tightening of restrictions has overshadowed the start of the year in Switzerland and the Nordics, and our GDP growth forecasts for 2022 are about 0.5%-pts lower than the consensus. Nonetheless, the soft patches for activity should be short …
26th January 2022
A Russian military invasion of Ukraine would adversely affect the euro-zone economy by further disrupting the market for energy, pushing up inflation and reducing households’ real incomes. However, any economic fallout would probably be fairly small and …
25th January 2022
Euro-zone inflation would be even further above target if owner-occupied housing costs were included in the region’s headline measure. Their formal inclusion won’t take place for a few years yet, but the ECB has pledged to take them into account in the …
Economy stabilising The increase in the Ifo Business Climate Index (BCI) in January provides more evidence that, after contracting in late 2021, conditions have stabilised at the start of the year. With disruption from the Omicron wave likely to ease in …
Sluggish January, but outlook improving The small decline in the Composite PMI in January confirms that Omicron has taken a toll on the services sector, though Germany performed surprisingly well. We think governments will ease restrictions sufficiently …
24th January 2022
Italy’s presidential election, which will begin next week, threatens to reignite political uncertainty that has been quiescent since Mario Draghi became prime minister last year. While we agree that losing Mr Draghi as prime minister would put the …
21st January 2022
Consumer confidence proving to be resilient January’s broadly unchanged reading for consumer confidence suggests that household spending might be holding up fairly well, despite a surge in Covid cases. We expect consumption to recover quickly once the …
Overview – We expect consumption to rebound from the Omicron wave within a few weeks, lifting euro-zone GDP to its pre-pandemic level in the first half of the year. But GDP will remain below its pre-pandemic path for the foreseeable future. Meanwhile, …
The key event of this week (for us at least) was the release of our European Economic Outlook setting out our forecasts for 2022 and 2023. We think the euro-zone will come through the Omicron wave of coronavirus relatively well but think growth will be …
Denmark achieves a geranium “greenium” Denmark joined the growing list of countries to offer a green sovereign bond, on Wednesday. The country is far from a trailblazer in the area, with the Netherlands, Germany, and the UK all amongst those to have …
The long and detailed account of December’s Governing Council meeting underlines that there are significant differences of opinion about the inflation outlook. We suspect that the balance of opinion will shift in the coming months towards forecasting …
20th January 2022
Core inflation to remain high Euro-zone inflation is likely to have peaked at 5% in December, with energy inflation set to fall sharply this year. But we think that core inflation will settle at around 2%, prompting the ECB to prepare the ground for …
After twelve years in the job, Øystein Olsen was never going to spring a surprise at his last meeting in charge of the Norges Bank. Instead, the Bank left its policy rate unchanged at 0.5% and reiterated that it “will most likely be raised in March”. We …
German inflation to remain uncomfortably high Final inflation data for December showed that the decline in Germany’s HICP inflation rate to 5.7% was due to energy and services. We expect both headline and core inflation to fall this year, but only to …
19th January 2022
The Riksbank has learnt from its past tendency to project rate hikes that never arrive. But the single repo rate rise by end-2024 that it currently projects is stretching the limits of plausibility in the other direction. Of course, policymakers will …
17th January 2022
Ha det bra, Governor Olsen You don’t have to be Sherlock Holmes to deduce that next Thursday’s announcement from the Norges Bank will be a non-event in terms of policy action. Having raised interest rates to +0.50% at the last meeting, in December , we …
14th January 2022
Economy close to standstill in Q4 The latest activity data for the final quarter of last year are a mixed bag. The industrial production data for November published this week suggest that manufacturing output may have declined in the fourth quarter. (See …
Disappointing recovery Provisional data showing that Germany’s GDP increased by 2.7% last year and news that it shrank in Q4 underlines that its recovery has lagged many of its peers, including the US, France and the UK. We think that German GDP will …
More ammunition for the Riksbank’s hawks The increase in Swedish CPIF inflation in December will embolden the hawks at the Riksbank. While we expect energy effects will drop out this year, continued supply-chain problems and rising inflation expectations …
Norwegian policymakers will keep interest rates on hold, at +0.50%, next Thursday, before resuming their tightening cycle in March. We forecast one rate hike per quarter this year, which is one more than investors have currently priced in over the period. …
13th January 2022
We expect policymakers in Denmark and Switzerland to match the 50bps of interest rate hikes that we now forecast in the euro-zone next year. And against the backdrop of rising global interest rates, we now think that the Riksbank will start a tightening …
With pandemic-related inflationary pressures proving a bit more intense and persistent than we had anticipated, and policymakers sounding more willing to tighten policy, we think the ECB is most likely to end net asset purchases in December 2022 and raise …
12th January 2022
Rise in industrial output won’t prevent a poor Q4 November’s 2.3% monthly increase in euro-zone industrial production followed a big downward revision to October’s figures and was largely due to huge volatility in Ireland. The big picture is that industry …
We doubt that “fiscal dominance” – worries about the impact of higher interest rates on debt sustainability – would stop the ECB from raising interest rates. But it might encourage the Bank to backstop the bond market even after raising rates by …
11th January 2022
Euro-zone inflation reached 5.0% in December, which is likely to be the peak. Unless oil and gas prices surge again in 2022, which seems unlikely, energy inflation will plummet – we forecast the contribution of energy to headline inflation to drop from …
Labour force back to pre-pandemic size Unemployment in the euro-zone fell again in November, and timelier data suggest that there have been further improvements since then. While there has been less of a hit to the workforce in the euro-zone than in the …
10th January 2022
More ammunition for Norges Bank to press on with rate hikes While Norwegian policymakers do not have as laser-like a focus on consumer price inflation as most, the increase in the core rate in Norway in December only lends support to our hawkish view that …
Next stop, rate cut in Denmark? We learnt this week that Denmark’s Nationalbank intervened heavily in the FX market in December to counter upward pressure on the krone. The sale of DKK 47 billion in the month was the biggest intervention in absolute terms …
7th January 2022
Looking at the euro-zone, one would be forgiven for feeling a slight sense of déjà vu as we start the new year. Once again, a surge in Covid infections – this time driven by the Omicron variant – has prompted tighter restrictions on domestic activity. …
