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Germany’s worsening Covid situation means much of the country could be subject to much tighter restrictions soon, potentially knocking around 0.25%-pts off euro-zone Q4 GDP. Even if other countries impose less draconian rules, consumer caution might mean …
23rd November 2021
Recovery continues, but outlook darkening The unexpected rise in the euro-zone Composite PMI in November suggests that the region’s recovery has not lost further momentum. But with supply shortages still acute, Covid restrictions being tightened and price …
After weeks of worrying about surging inflation and what the ECB will do next, developments this week were a stark reminder that the pandemic is far from over. The rapid deterioration in the Covid situation in Austria over the past week has driven the …
19th November 2021
Well, that happened quickly! We argued only last week that the SNB would be comfortable with letting the Swiss franc push higher against the euro. (See here .) As it happens, we didn’t have to wait long to be vindicated. The sharp rise in the franc this …
Several euro-zone governments have tightened coronavirus rules lately and more measures are on the cards, including in Germany. On the whole, these are set to be less severe than they were earlier this year and have less economic impact. But “lockdowns” …
18th November 2021
The Riksbank is all but certain to leave its policy settings on hold next week. But against a backdrop of above-target inflation and the broader hawkish shift by policymakers elsewhere, we expect it to dial down the dovishness a bit and to perhaps further …
Inflation to stay above 2% until late 2022 October’s euro-zone inflation data confirm that core price pressures are weaker than in other advanced economies. That said, we think headline inflation will remain above 2% until late 2022. Data released today …
17th November 2021
Germany and Austria are at the centre of the Covid storm in Europe, and the fact that vaccination coverage in Switzerland is even lower does not bode well. Vaccine take-up varies from about 60-80% in Switzerland, but is lowest in some of the …
16th November 2021
The current bout of high inflation will put much less direct upward pressure on negotiated wages in the euro-zone than in previous such episodes. This is because far fewer agreements now contain inflation-linked clauses and those which do are typically …
Pace of recovery to slow The decent increase in euro-zone GDP in Q3 means that the recovery is now almost complete in most of the region. We had already expected growth to slow markedly in Q4 as the boost from reopening fades and supply chain disruption …
We expect the ECB to interpret a period of above-target inflation as “transient” even if it lasts for well over a year. Although it will end its emergency PEPP programme next March, we think the Bank will step up the pace of its conventional asset …
15th November 2021
Something, at last, for the Riksbank to ponder CPIF inflation rose to a 15-year high in October, although the headline rate was just half that reached in the US, for example, and the core rate remained below 2%. Policymakers won’t be losing sleep just …
Deciphering the SNB’s intentions on the FX front The weekly sight deposit data published by the SNB every Monday morning provide a timely, if imprecise, window into the Bank’s actions in the FX market. The last three data releases suggest that the SNB has …
12th November 2021
Price pressures still weaker than in the US Inflation releases on both sides of the Atlantic this week highlighted how price pressures are still weaker in the euro-zone than in the US. Core inflation in Germany rose in October to 2.8% (see here ), much …
Manufacturing will face a tough Q4 The second successive monthly decline in industrial production, in September, means that production was unchanged in Q3 compared to Q2. As supply-chain difficulties are likely to persist for some time, the outlook for …
The jump in headline inflation in Spain in October was almost entirely down to the electricity component. We do not expect this bout of higher inflation to last, but in the meantime, consumers are facing a squeeze on real incomes that risks leaving …
The UN’s annual climate change conference, COP26, will not have any discernible impact on Norway’s intention to keep pumping oil and gas over the coming decades. The irony is that Norway’s success in handling its resource windfall means that it is well …
10th November 2021
Close to the peak The breakdown of October’s inflation data confirms that most of the increase, from 4.1% in September to 4.6% on the HICP measure, was due to higher energy prices. We suspect that inflation will edge up a bit further before year-end but …
Subdued core inflation will not deter the Norges Bank The fact that the Norges Bank’s target measure of inflation fell to below 1% in October and is likely to remain at around this level until early 2023 will not stop policymakers from pressing on with …
Economic growth has slowed sharply as output approaches its pre-pandemic level. We think that GDP will probably increase by only around 0.5% q/q in the final quarter, down from 2.2% in Q3. Manufacturing firms in Germany are struggling more than most and a …
8th November 2021
There is growing evidence that global goods shortages are weighing on euro-zone activity. We expect this to contribute to a marked slowdown in growth in Q4, and the outlook for early 2022 is no better. What’s more, it looks likely that the shortage-driven …
5th November 2021
After failing to push back convincingly against financial markets’ expectations for rate hikes in last week’s press conference, ECB policymakers were out in force this week insisting that the Bank will not raise rates next year. Christine Lagarde said the …
Familiar foe of flying franc occupying minds at SNB Unlike the Norges Bank , the SNB did not have a policy meeting to keep itself busy this week. That said, while the meeting in Oslo was a snooze-fest, as anticipated, the recent surge in the value of the …
Low inventory levels pushing up retail prices Retail sales have levelled off since June as consumer spending on other services has increased. The latest survey evidence suggests that low inventory levels might also be limiting sales and are set to push up …
No respite for German industry The 1.1% m/m fall in industrial production in September was worse than the consensus and our own expectation. Business surveys suggest that shortages of components, particularly in the auto sector, will keep manufacturing …
Spain is a long way behind its euro-zone neighbours in recovering from the pandemic. That is partly because its important tourism sector has been hamstrung by travel restrictions but it also reflects domestic weakness. Some of the shortfall will be …
4th November 2021
Following yesterday’s taper announcement by the Fed, and ahead of the knife-edge decision by the Bank of England later today (we forecast a 15bp rate hike), this morning’s announcement from the Norges Bank was less eventful. Norwegian policymakers …
Supply problems, price pressures weigh on activity The PMIs suggest the euro-zone’s economic recovery will slow markedly in Q4 as supply shortages intensified throughout the region, especially for manufacturers. They also show that price pressures are …
The recent surge in energy prices and worsening supply chain disruption will keep Germany’s inflation rate higher next year than we had anticipated. However, we still think inflation will fall from a peak of around 5% to 2% or so by end-2022 and beyond …
3rd November 2021
Labour market recovery is likely to continue While the fall in euro-zone unemployment in September brings the jobless rate back to its pre-pandemic level, employment has not fully recovered. But the economy is growing strongly and the vast majority of …
Swiss inflation close to its peak at 1.2% Inflation did surprise on the upside in Switzerland in October, but only by a trivial amount, leaving the headline rate at just over 1%. The market is pricing in an increase in policy rates to zero by end-2023 but …
2nd November 2021
The ECB stuck to its script this week, with Christine Lagarde claiming that, after some “soul searching”, the Bank was comfortable with its view that the recent surge in inflation will prove to be transitory. Also, she didn’t sound too worried that other …
29th October 2021
Strong rebound in Sweden Data released this week showed that Sweden’s economy grew by a stronger-than-expected 1.8% q/q in Q3, but the data weren’t as encouraging as they first appeared. The upside surprise in the third quarter was largely due to a …
Growth will slow sharply after nearly full recovery The solid increase in euro-zone GDP in the third quarter means that the recovery phase is now almost complete in most of the euro-zone. Growth will be much slower in Q4 because the boost from reopening …
Risks to inflation next year lie firmly to the upside Euro-zone inflation looks set to rise further before year-end as higher input costs continue to feed through. We agree with the ECB that the forces pushing inflation up should fade next year, and our …
A strong start to Q4 While many economies in Europe are facing the twin headwinds of supply constraints and high gas prices, the KOF Economic Barometer in October suggests that the Swiss economy continued to grow strongly at the start of Q4. The slight …
Almost fully recovered The stronger-than-expected increase in French GDP in Q3 took the economy back to within a whisker of its pre-virus size as the full lifting of restrictions caused activity to rebound strongly. Supply chain disruptions and rising …
Data published this week provide more evidence that the supply of labour has held up fairly well in the euro-zone and that those who have left the labour market have probably not done so permanently. This should help to keep a lid on wage growth at a time …
28th October 2021
The ECB stuck to its script today, arguing that although the increase in inflation now underway will be larger and last longer than previously anticipated, it is still temporary. Meanwhile, confirmation that the PEPP will end in March tells us nothing …
Supply chain problems still evident The EC Economic Sentiment Indicator for October increased a touch, but the details show that expectations for production declined slightly, probably due to the worsening supply chain problems. So there is nothing here …
Strong Q3 but supply chain pressures building The stronger-than-expected growth in Swedish GDP in Q3 shows that the recovery continued apace over the summer, lifting activity even further above its pre-pandemic level. But while business confidence …
Money growth has slowed this year and is likely to decline further next year. Meanwhile, although the pandemic has resulted in a huge increase in the money supply, we do not think this will cause inflation to rise because the relationship between the …
27th October 2021
Since the start of the pandemic, Italy has experienced a bigger drop in its workforce than other euro-zone countries. But that largely reflects temporary factors, which suggests that the labour force will eventually recover to around its pre-crisis level, …
26th October 2021
Economy likely to tread water in Q4 The fourth successive monthly fall in the Ifo Business Climate Index provides more evidence – if it were needed – that supply side disruption is causing the German economy to slow sharply and suggests that the problems …
25th October 2021
We don’t have much timely official data on the detailed breakdown of consumption. But the available evidence shows a sharp (albeit uneven) increase in spending on services since the end of Q2. While spending in restaurants has risen above pre-pandemic …
22nd October 2021
The timing of Jens Weidmann’s resignation was not the shock that many journalists suggested it was. After all, early resignations have become as much of a tradition for the Bundesbank as its opposition to QE and negative interest rates! Nor was it a …
Riksbank Board increasingly finely balanced Like any good double act, Riksbank Governor Ingves and Deputy Governor Flodén stuck to the same script when they jointly addressed the Bank’s Finance Committee on Tuesday. Both reiterated the view that the …
Supply problems getting worse October’s euro-zone PMI surveys suggest that supply problems in the manufacturing sector are getting worse, weighing on output and causing price pressures to intensify. The fall in the Composite PMI from 56.2 in September to …
ECB will acknowledge upside risk to inflation but say the rise is mostly temporary. The Bank will also push back against expectations for a rate hike next year. The bigger decisions on future asset purchases will be delayed until December. Nobody expects …
21st October 2021
Inflation will rise further before it comes back down Euro-zone inflation looks set to climb further in the coming months as higher input and energy costs feed through. An unusually cold winter would put even more upward pressure on gas prices in the …
20th October 2021
