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Service sector becoming a drag on growth The EC Economic Sentiment Indicator decreased markedly in December, as the surge in Covid cases and tightening of restrictions took their toll on activity in the services sector. The survey also showed that …
7th January 2022
Inflation unlikely to fall to 2% until end of 2022 After reaching 5.0% in December, headline euro-zone inflation should fall this year as the energy component plummets. But we think that core inflation will remain around 2%. The increase in headline …
Stalling manufacturing raises chance of recession The unexpected decline in German industrial production in November increases the chance that GDP fell in the last quarter of 2021. And with the Omicron variant likely to hit Germany hard in the coming …
Omicron will reduce economic activity in the coming weeks due to tighter restrictions, consumer caution and absenteeism. Our best guess is that economic activity in the euro-zone will decline in January but for now we assume it will rebound in February. …
6th January 2022
We think that GDP growth in Switzerland and the Nordics will be slower than most anticipate this year, and the boosts to inflation from energy prices will subside over the year. But while the SNB will keep interest rates on hold at a record low, …
Inflation will fall further in 2022 Germany’s HICP inflation rate fell to 5.7% in December and is now past its peak, but the national CPI measure, which is arguably a better indicator at the moment, rose slightly. Looking ahead, we expect Germany’s …
We think euro-zone GDP growth will be lower than most anticipate this year, at around 3.5%, while inflation will come down towards 2% by year-end allowing the ECB to leave interest rates unchanged and continue net asset purchases. The big risk is that …
5th January 2022
Weak growth and intense price pressures going into 2022 The final Composite PMIs for December confirm that the euro-zone economy ended 2021 on a weak note, consistent with our view that GDP rose by only about 0.2% q/q in Q4. They also suggest that price …
This year’s surge in natural gas prices means that HICP inflation may be up to one percentage point higher next year than it would otherwise have been. However, aggregate energy inflation is still likely to come down during 2022, because transport fuel …
22nd December 2021
Festive spirit in short supply December’s decline in consumer confidence adds to the list of deteriorating consumer indicators. We expect household spending to contribute to a marked slowdown in GDP growth in Q4 to just 0.2% q/q. Data released this …
21st December 2021
Riksbank looking increasingly behind the curve The resilience of the ETI in December underlines that the Swedish economy is comparatively well-placed going into 2022. All told, the pressure on the Riksbank to soften its so-far dovish stance is building. …
The majority of this week’s multiple central bank decisions turned out to be a little more hawkish than most had anticipated, and the ECB was no exception. We commented on its decision here , but a couple of points are worth underlining. First, the ECB …
17th December 2021
Shifting sands at ECB change landscape for the SNB As expected, Thursday morning’s SNB announcement did not throw up any surprises, and the ability of Swiss policymakers to play a straight bat puts England’s openers to shame. However, the mildly hawkish …
Inflation to stay above 2% until late 2022 November’s detailed inflation breakdown shows that the increase in price pressures is not just due to high energy costs and global demand-supply imbalances for durable goods. Services inflation has risen too. We …
Another bleak midwinter The fall in the Ifo BCI for December underlines that German’s economy has been hit hard by the latest Covid wave even before the Omicron variant has taken hold. The only consolation is that manufacturers are holding up well. It now …
The Riksbank (along with the RBNZ) is one of the few major central banks not to have a scheduled meeting in December. But with the Fed having put its hawkish cards on the table, rate hikes by the Bank of England and Norges Bank , and a chance that even …
16th December 2021
The ECB confirmed today that it will reduce the pace of its monthly asset purchases to €40bn by April next year. It plans to reduce them to €20bn by October and then continue as long as necessary. We have brought forward our forecast of the first rate …
Rebound in wage growth won’t trouble the ECB The rebound in euro-zone hourly wage growth in Q3 is a sign of base effects fading and there is no evidence that this is the beginning of a wage-price spiral that would concern the ECB. Indeed, wage growth is …
Ending Q4 on a weak note The renewed decline in the Composite PMI in December suggests that growth slowed to a crawl as tighter restrictions and growing consumer caution are taking their toll on economic activity, with the service sector bearing the …
While the Swiss National Bank maintained the status quo once again this morning (yawn), the Norges Bank continued its tightening cycle, as expected, and opened the door to another rate hike in March. We are sticking to our hawkish forecast that rates will …
Given the fast-moving virus situation in Europe, and mindful of the fact that Omicron won’t be taking a festive break, this Update identifies five key areas of uncertainty to watch over the coming weeks. Europe was labelled the epicentre of the pandemic …
15th December 2021
Industry has better start to Q4, but supply problems persist The rise in euro-zone industrial production in October means euro-zone industry started Q4 on a decent note. But supply-chain problems remain acute and, in any case, any improvement is likely to …
14th December 2021
More fodder for the Riksbank’s hawks The increase in Swedish CPIF inflation in November strengthens the hand of the hawks at the Riksbank and supports our view that policymakers will reduce the size of the balance sheet next year. But with energy effects …
Italy will elect its next president in January, with prime minister Mario Draghi widely touted as a favourite to take up the post. If he did so, the current government would probably fall apart, making it more difficult to pass necessary economic reforms …
13th December 2021
Interview coaching for SNB candidates This week’s announcement that Fritz Zurbrügg – one of the three members of the SNB’s Governing Board – will retire at the end of July 2022 sounded the starting gun to appoint his successor. We are not privy to the …
10th December 2021
This week brought yet more bad news for the euro-zone economy. Although German industrial output grew by 2.8% on the month in October, driven by a rebound in the struggling auto sector, this followed months of declines and left production 6.5% below its …
Energy effects to subside next year Headline inflation reached a 13-year high in November, mainly driven by energy inflation. But the core rate was more subdued and is likely to remain below the Norges Bank’s target throughout 2022. The rise in headline …
Bank to raise 2022 inflation forecast but still predict an undershoot in 2023. Policymakers will keep open possibility of using the PEPP after March. Christine Lagarde will stress uncertainty and need for flexibility. Just a day after we expect the Fed to …
9th December 2021
Omicron means that a Norges Bank rate hike next Thursday is no longer as nailed on a prospect as it once was, but we still think that policymakers will decide to raise rates to +0.50%. Meanwhile, although the SNB has let the franc rise in recent weeks, it …
Tighter Covid restrictions and increased consumer caution appear to be causing euro-zone activity to decline. We have revised our euro-zone Q4 GDP growth forecast down to 0.2% q/q and the risks are still to the downside. Although there is still a lot of …
8th December 2021
The tightening of Covid restrictions in the Netherlands in response to the resurgence of the virus there in recent weeks will put a temporary brake on GDP growth in Q4. But we think that the underlying strength of domestic demand and an increase in net …
New Covid wave and supply shortages weighing on economy Data released today show that the euro-zone economy recovered to within 0.5% of its pre-pandemic level in Q3. But with Covid cases rising, governments tightening restrictions, and supply problems …
7th December 2021
Partial recovery in auto sector lifts output The rebound in auto output in October means that aggregate industrial production may increase in the fourth quarter. But with the services sector being hit hard by new Covid restrictions, it seems likely that …
High frequency data show that travel to retail and recreation destinations, restaurant bookings and flights have all declined in the past few weeks as coronavirus restrictions have been tightened in the face of rising hospitalisations. (See Chart 1.) It …
6th December 2021
“You shall not pass!” [the CHF 1.04 per euro mark] We were ahead of the curve in arguing that the SNB would wave goodbye to the implicit ceiling of CHF 1.05 per euro that it defended in earnest during the early stages of the pandemic. (See here .) …
3rd December 2021
In contrast to those at the US Fed, ECB policymakers are not ready to retire their argument that the current bout of high inflation is temporary. Indeed, Vice President Luis de Guindos said this week that “the high rate of inflation we’re experiencing …
Consumption set for a weak Q4 Euro-zone retail sales have levelled off since June, but rising Covid cases and the return of restrictions are likely to weigh on sales and other components of consumption in the coming months. October’s 0.2% m/m increase in …
Covid situation casts doubt on further labour market gains While labour market conditions continued to improve in October, the recent deterioration of the Covid situation and increased uncertainty due to the Omicron variant are likely to mean the recovery …
2nd December 2021
Given the uncertainty around Omicron, and the revealed preference of the SNB in recent weeks to largely stay out of the FX market, we would not be surprised to see the Swiss franc rise further against the euro in the near term. But any upside is limited, …
1st December 2021
Swiss inflation at its peak Inflation surprised on the upside in Switzerland in November, but this was due to temporary factors and it is likely to fall back to below 1.0% over the coming months. The upshot is that there is next to no chance of the SNB …
The confirmation earlier today that far-right pundit Eric Zemmour will stand in France’s presidential election next spring comes as no surprise given his rise in the polls. But French President Emmanuel Macron still looks on course to win a second term, …
30th November 2021
Inflation to remain above target for a long time November’s inflation data were yet another surprise on the upside. The Omicron variant has increased the level of uncertainty even further but for now we suspect that it will have a fairly small impact on …
It is still very early days in assessing the effects of the latest Covid variant, but we suspect that Omicron has the capacity to cause a new decline in economic activity in the coming months but that it will probably have a relatively small impact on …
29th November 2021
Inflation peaks at 6% and will decline regardless of Covid The increase in German inflation to 6% on the HICP measure was partly due to statistical quirks which should be reversed next month. But even the national CPI measure of inflation rose to 5.2%. …
Sentiment high before Omicron news Despite the slight deterioration on the month, November’s EC business and consumer survey showed that economic sentiment in the euro-zone was high before the recent news about the Omicron variant. It also confirmed that …
It is too early to judge how serious the B.1.1.529 variant will turn out to be (though see our initial thoughts here ) but it has already caused European equities to fall by over 2% as travel and energy stocks in particular have tanked on fears of new …
26th November 2021
SNB starting to show its hand Having risen through the CHF 1.05 per euro mark last week for the first time since mid-2015, the Swiss franc rose by a further 0.5% this morning on the back of the worries about the B.1.1.529 variant . This was mirrored in a …
The account of October’s ECB meeting suggests that it is by no means guaranteed that net PEPP purchases will end in March. And even if they do, the Bank may well leave open the possibility of re-starting PEPP purchases later in 2022 if needed. Meanwhile, …
25th November 2021
In comparison to the chaotic scenes in the Riksdag yesterday, the Riksbank’s November meeting was a more sedate affair. While the Bank is in no rush to raise the repo rate, the insertion of a rate hike into the end of its three-year projection period …
Slowdown about to get much worse The fall in the Ifo Business Climate Index (BCI) for November was in line with expectations and suggests that the German economy was struggling even before the recent tightening of Covid restrictions. Things will be much …
24th November 2021
