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As highly-open economies, Switzerland and the Nordics are far from immune to the issues of slowing global growth and supply-chain shortages that are currently vexing investors. Sweden is perhaps most exposed; the impressive rebound there looks to have …
20th October 2021
Overview – Supply chain problems will slow the recovery and keep inflation above target until around the middle of next year. Beyond that, however, the economy should get back on track. After regaining its pre-crisis level later this year, output is …
19th October 2021
Core inflation still subdued While global financial markets are obsessing over the possible rebirth of inflation, there are precious few signs that it is about to take off in Scandinavia. We learnt this week that the headline rate rose in both Norway and …
15th October 2021
Higher oil and gas prices… lower inflation? The rollercoaster ride in European gas prices continued this week, but the big picture is that they remain very high. Meanwhile, oil prices have continued to climb. We think that this will contribute to a bigger …
The Norges Bank’s tightening cycle began at the end of last month and we suspect that investors are underestimating the pace of rate hikes to come. By contrast, the Riskbank looks set to leave interest rates unchanged for some time, instead adjusting its …
Core inflation to stay moderate While CPIF inflation in Sweden rose to a 155-month (!) high in September, we expect core inflation to remain at a more moderate level over the coming years, and lower than in the US, say. As a result, we forecast the …
14th October 2021
Supply shortages biting The large decline in euro-zone industrial production in August was largely due to supply shortages affecting production, particularly in the German auto sector. While demand is still strong, prolonged supply shortages and high …
13th October 2021
Core inflation in the euro-zone rose to 1.9% in September, its highest level in nearly 13 years, but other measures of underlying inflation are much lower. This supports our view that when the temporary forces pushing up inflation have faded, the core …
12th October 2021
Weak core inflation will not prevent December rate hike There was nothing in today’s release of Norwegian inflation data for September to overly trouble the Norges Bank, or cause it to deviate from its stated intention to raise interest rates again in …
11th October 2021
Moves in wholesale natural gas and electricity prices have continued to dominate this week in the euro-zone, with the price of European natural gas having doubled over the past month and currently trading almost 12% higher than it was just a week ago. …
8th October 2021
Halloween came early this year in Sweden It might not be Halloween until the end of the month but the 3.8% m/m drop in Sweden’s GDP Indicator in August (released on Wednesday) was a horror show in its own right. (See here .) (Incidentally, the fact that …
Although the krone has rallied this year on the back of high energy prices and the expectation of tighter monetary policy, we do not expect this to continue. We think slowing global growth and normalising energy prices will work against the krone over the …
7th October 2021
Supply shortages and rising energy prices are becoming stronger headwinds to the euro-zone recovery. The latest data from Germany showed sharp falls in industrial orders and production (see Chart 1), with manufacturers citing supply bottlenecks as a …
The account of September’s ECB meeting revealed many policymakers believed that inflation may stay higher for longer than the Bank’s projections show. Recent developments have added to the upside risks. As a recap, at its September meeting the ECB …
The extraordinary rise in European gas prices in recent weeks has raised the possibility that, as a last resort, European governments may need to ration the supply of electricity to businesses or households. The economic impact of rationing would depend …
Growing fears of a “bottleneck recession” The whopping 4.7% m/m fall in German manufacturing production in August left industrial output 9.0% below its February 2020 level. With conditions having worsened since then, Germany’s manufacturing problems …
The eye-watering decline in Swedish GDP in August suggests that supply shortages and weakening global growth will continue to take the shine off the impressive rebound in the Swedish economy in late 2021. The 3.8% m/m plunge in Statistics Sweden’s GDP …
6th October 2021
Retail sales levelling off, but consumption strong in Q3 August’s euro-zone retail sales data suggest that consumer spending on goods is flatlining. But overall consumption is still likely to have grown fairly strongly in Q3 as spending on services …
Changes to the weights applied to the goods and services in the inflation basket pushed inflation up in January, but since April the new weights have kept the headline rate lower than it would otherwise have been. The impact of next year’s changes in …
5th October 2021
Recovery continues, but loses momentum The PMIs are consistent with the euro-zone’s economic recovery losing some momentum as GDP approaches its pre-pandemic size and as supply shortages take their toll, especially in manufacturing. The surveys also show …
Households continued to accumulate “excess” savings in Q2 this year, with those held as cash and bank deposits equivalent to about 4% of GDP. We do not expect all of this to be spent, but some of it will. And it should also provide a small indirect …
4th October 2021
Switzerland didn’t get the “inflation surprise” memo Inflation is a rare beast in Switzerland at the best of times and the lower-than-expected September print means that we now doubt it will even breach 1% this year. Against this backdrop, the stage is …
The 3.4% euro-zone inflation rate recorded in September (up from 3.0% in August) is probably not the peak. (See here .) Surging European gas prices, which have risen by more than twenty-fold from last year’s lows, prompted us to revise up our forecasts …
1st October 2021
United façade at the Riksbank set to be tested Against the backdrop of the recent hawkish shifts by the US Fed and the Bank of England – and the start of hikes in Norway – the release of the minutes from the Riksbank’s last policy meeting underline that …
Inflation heading to 4% Euro-zone inflation looks set to continue on its upward trend and we think it will soon hit 4%. That makes it more likely that the ECB will scale back its asset purchases substantially in March. But we still expect headline and …
Industrial activity so far holding up in face of global constraints The set of manufacturing PMIs from Switzerland and the Nordics for September suggest that industrial activity has so far been pretty resilient in the face of global supply-chain …
While the announcement of a 10bp interest rate cut by Denmark’s Nationalbank this afternoon seemingly goes against the grain of the recent hawkish shifts by the US Fed and Bank of England, it is the logical culmination of sustained upward pressure on the …
30th September 2021
The ECB is likely to argue that the increase in inflation to above its 2% target is “transient” even if it continues for much longer than currently expected. The key question is not how long inflation has been above target but whether it is expected to …
Euro-zone governments’ reduction in support for jobs will not cause unemployment in the region to jump, since there are now relatively few workers benefiting, and hiring activity is strong. But lingering spare capacity in the labour market means worker …
Decline in the unemployment rate likely to continue The fall in euro-zone unemployment in August brings the jobless rate back very close to its pre-pandemic level. But employment is still below pre-virus levels, highlighting that the labour market …
Sentiment holds up in the euro-zone The small improvement in economic sentiment in the euro-zone in September provides reassurance that supply shortages and the Delta variant will not cause a sharp slowdown in economic growth. Nevertheless, price …
29th September 2021
As a result of the increase in gas prices, we now think that euro-zone headline inflation will soon hit 4% and that it will average 2% in 2022. But headline and core inflation still look set to fall over the course of next year, with both settling at …
28th September 2021
With the CDU/CSU and SDP having won very similar shares of the vote, the composition of Germany’s next government still hangs in the balance. An SDP-led coalition would probably pursue a slightly less restrictive fiscal policy, but any change of direction …
27th September 2021
This week, some of the world’s major central banks, from the US Fed to the Bank of England , hinted that they will be shifting towards tighter monetary policy in the months ahead. Indeed, the Norges Bank this week hiked its policy rate, the first G10 …
24th September 2021
The phoney interest rate ‘war’ in Norway is over Norwegian policymakers would make terrible poker players because they have a habit of telling you what they will do and do not bluff. Accordingly, having finally started the long-awaited and well-signalled …
A disappointing end to Q3 The third successive decline in the Ifo Business Climate Index in September provides further evidence that Germany’s recovery is losing steam, as supply chain difficulties persist and the surge in gas prices piles additional …
The federal election in Germany on Sunday will result in a new chancellor for the first time since 2005 and opinion polls suggest that the result will be extremely close with potentially months of coalition talks ahead. In this Update , we answer five key …
23rd September 2021
This morning’s policy decision double-header played out as planned, with the Swiss National Bank maintaining the status quo and the Norges Bank finally pulling the trigger on its tightening cycle. But while rate hikes in Switzerland are many years away, …
Supply shortages hamper growth, exacerbate price pressures September’s PMIs suggest that the pace of recovery slowed further at the end of Q3, in part as the euro-zone economy approaches its pre-virus size but also as supply shortages continue to bite. …
The Riksbank stuck firmly to “Plan A” this morning by maintaining the status quo for the repo rate and its asset purchase programme. However, the slight tweak to the Bank’s language on the outlook for the balance sheet lends support to our view that …
21st September 2021
The low use of gas, and a reliance on nuclear and renewables for electricity generation, means that Switzerland and the Nordics are less exposed to the recent surge in gas prices than other parts of Europe – particularly Spain. While Switzerland and the …
20th September 2021
The upward pressure on euro-zone headline inflation from the surge in natural gas prices will not be felt evenly throughout the region, with Spain looking most vulnerable. Governments are stepping in to cushion the blow, but higher energy bills are a …
Rising inflation eating into spending power Data published this week highlight the twin drags of weak pay growth and rising inflation to households’ real incomes. We expect inflation to fall sharply next year, but the risks to our forecast are to the …
17th September 2021
Policymakers at a three-pronged fork in the road Next week’s three central bank announcements from Sweden, Switzerland, and Norway (in that order) promise to offer something for everyone, whatever their predilection on the policy front. The Riksbank will …
Upside risks to inflation are building Rising costs – from shipping to energy – are likely to push euro-zone inflation up even further in the coming months. They might also mean that it doesn’t fall quite as quickly next year as we currently assume. But …
While the Swiss National Bank is set to leave interest rates on hold yet again next Thursday, the Norges Bank will finally pull the trigger on its tightening cycle. Given the backdrop of global risks such as the Delta variant and supply issues, we suspect …
16th September 2021
Wage pressures not quite as weak as Q2 data suggest The sharp fall in euro-zone average hourly labour costs in Q2 compared to a year earlier was mainly due to pandemic-related distortions to the data that will continue to muddy the picture for another …
15th September 2021
The momentum in the Swedish economy, and jump in inflation in August, gives the Riksbank plenty to ponder at next week’s policy meeting. While repo rate hikes are not on policymakers’ agenda, the reduced risk of disinflationary pressures lends support to …
14th September 2021
Stronger inflation to change the conversation at the Riksbank The stronger-than-expected pick-up in Swedish headline inflation in August ups the ante for the Riksbank ahead of next week’s policy meeting. While repo rate hikes are low down on policymakers’ …
The recent surge in the prices of natural gas and coal, and therefore electricity too, has boosted energy inflation and suggests the risks to our near-term forecast for headline inflation lie to the upside. But the effects of this will start to fade next …
13th September 2021
