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A divergence between strong surveys and weak industrial ‘hard’ data, mainly in the euro-zone, has again raised questions about how to interpret the business surveys. There are several reasons why survey indices of output have overstated the actual …
13th April 2021
Restrictions still holding back retail spending Euro-zone retail sales rose in February but were 2.8% below their pre-pandemic levels. In many countries coronavirus restrictions have been tightened since then, and are unlikely to be eased again until well …
12th April 2021
We estimate that households accumulated “excess” savings of around 4.4% of GDP last year. But they are unlikely to spend this cash any time soon, so it will probably not do much to boost the recovery. Data published today show that euro-zone households …
9th April 2021
The IMF gives Switzerland tops marks for effort The IMF completed its latest Article IV consultation with Switzerland this week. The concluding statements of such missions are typically rather anodyne but this one included some linguistic flourishes. For …
The final release of the euro-zone PMIs for March this week showed that the Composite index for the region was even stronger than previously estimated and that the increase was broad-based. This rounded off a strong run of business and consumer surveys …
German GDP will have fallen in Q1 The unexpected fall in industrial production in February means that German GDP will almost certainly have contracted in Q1. With severe restrictions likely to remain in place until well into the second quarter, a …
Persistently above-target inflation to pave way for rate hikes The fact that core inflation in Norway came in above target for the fifteenth month in a row in March came as no surprise. However, it underlines that the Norges Bank is in a very different …
The euro-zone economy is doing better than many expected given that much of the hospitality and travel sector is still closed due to virus-related restrictions. Indeed, the latest business surveys suggest that manufacturing output is growing at a …
8th April 2021
The account of March’s ECB meeting showed that the decision to increase asset purchases was agreed by all members, but that some were reluctant to do much more. In practice, purchases haven’t risen very far since then. Given that the Bank could have …
Economy started 2021 on the front foot Monthly GDP data from Sweden for February indicate that output it is all but certain to have expanded in Q1. The recent surge in virus cases casts a cloud on the government’s plans to ease restrictions again soon, …
PMIs could be overstating recovery The euro-zone Composite PMI rose to an 8-month high in March, but the level of activity remains low. And while the PMIs suggest that price pressures are building, we suspect this will be temporary. The increase in the …
7th April 2021
The comparative success that the Danish government has had in handling COVID has allowed it to start to re-open the economy, despite the painfully slow progress on the vaccine front. Most economies in Europe are not as well placed, however, so their …
6th April 2021
Unchanged jobless rate even as restrictions are tightened The euro-zone’s unemployment rate was unchanged at 8.3% in February despite tighter virus measures being tightened, highlighting the extent to which government policies have protected jobs during …
The broad consensus among Germany’s major parties means that September’s election will not lead to big macroeconomic policy changes. But with the Greens and/or SDP set to gain influence, fiscal policy could become marginally less conservative, and Germany …
1st April 2021
Swiss manufacturers are too busy for pranks The spaghetti-tree hoax of 1957, which purportedly showed a Swiss family harvesting spaghetti from a tree, is widely regarded as one of the most successful April Fools’ pranks and (perhaps unfairly) exposed the …
Lockdowns blues Anyone glancing at the latest business surveys would get the impression that the euro-zone economy is booming. The EC Economic Sentiment Indicator, published earlier this week, echoed the message from the PMIs, and shows activity …
Looming pick-up in inflation won’t faze the SNB Swiss inflation looks set to continue its upward trend over the coming months, but with temporary factors likely to fade in H2, and underlying price pressures likely to remain much weaker, this won’t change …
Inflation looks set to rise further in Germany than in most other euro-zone economies this year and we suspect that it will remain higher there after the pandemic is over. However, we doubt that this will stop the ECB from maintaining ultra-loose monetary …
31st March 2021
Inflation to rise above 2% in second half of the year Euro-zone inflation continued on its upward trend in March and we think it will rise above 2% in the second half of the year. But this is largely due to temporary factors that are likely to fade in …
Inflation to rise further before it falls The increase in German HICP inflation to 2.0% in March is not the end of the upward trend. We expect rising energy prices and some further unwinding of the factors which suppressed it last year to push the …
30th March 2021
Rise in ESI unlikely to be sustained March’s jump in the EC’s Economic Sentiment Indicator (ESI) for the euro-zone took it to above its long-run average. But it was still below its pre-pandemic level and with virus restrictions now in place for longer, a …
Ending Q1 on the front foot The latest business surveys indicate that Sweden and Switzerland ended Q1 on strong footings, helped by buoyant conditions in their manufacturing sectors. The rise in Sweden’s ETI in March, from 103.8 in February to 105.3, …
Denmark plots a course to re-opening Sweden announced this week that it will allow vaccinations using the AstraZeneca jab to resume, albeit only for the over-65s, but both Norway and Denmark kept the temporary suspensions in place. It has not all been …
26th March 2021
Economy to tread water in H1 The PMI data for March released this week were better than expected, with the headline euro-zone index rising above 50 for the first time in six months. What’s more, not only did the PMIs and German Ifo surveys suggest that …
Jump in Ifo overstating strength of the economy The strong Ifo Business Climate Index (BCI) for March provided further evidence that, the auto sector aside, Germany’s manufacturers are flourishing. But the rest of the economy is faring less well, and the …
This morning’s decision by the Swiss National Bank to keep its policy settings unchanged came as no surprise. The prospect of further falls in the franc should allow the Bank to largely stay out of the FX market, but the policy rate will remain rooted at …
25th March 2021
The annual rate of money and lending growth remained strong in February, and with the ECB likely to make significant asset purchases throughout this year and next, money growth will remain well above pre-pandemic levels. But we don’t think this will cause …
We are revising down our forecast for euro-zone GDP growth due to the resurgence of virus cases, slow pace of vaccination and extension of lockdowns. The recovery is likely to be delayed until the third quarter this year and we think GDP will not regain …
24th March 2021
The EU’s tougher stance on vaccine exports might help to secure some concessions and additional doses from the UK. But it will do nothing to combat vaccine hesitancy in parts of the bloc and is unlikely to significantly boost the rollout in Europe. This …
Rise in confidence unlikely to be sustained The sharp increase in euro-zone consumer confidence in March came as a big surprise given tighter restrictions across the bloc and ongoing difficulties with the AstraZeneca vaccine. That said, confidence is low …
Supply problems continue to boost prices March’s rise in the euro-zone Composite PMI pushed it back above the 50 mark for the first time in six months, but the recent tightening of restrictions in a number of countries suggests the improvement will not be …
The easing of virus restrictions in Greece this week – despite rising case numbers – is unlikely to change the picture for Q1; the economy probably contracted. Moreover, if it leads to a faster spread of the virus, it could even delay the start of the …
23rd March 2021
Tighter restrictions for large parts of France for at least the next month are likely to reduce activity by only a further 1.5% or so. But the economy was already operating some 5% below its pre-virus level and the prospect of the most economically …
19th March 2021
Norges Bank’s Intentions (4,4): RATE HIKE The Norges Bank’s decision to leave its policy rate on hold at zero this week was never really in doubt. However, as we expected, policymakers shifted to a more hawkish stance and prepared the ground for the start …
While the ECB promised last week that it would make “significantly higher” bond purchases over the coming quarter, there has been little evidence so far that the weekly pace of purchases has accelerated. The latest data showed that the ECB made net …
The Swiss National Bank will have cheered on the recent fall in the franc against the euro. However, policymakers are unlikely to offer up any surprises at the policy announcement next Thursday. Given that the SNB last changed interest rates in January …
18th March 2021
Even as inflation picks up this year, additional labour market slack, weak past inflation and a focus on jobs protection at the expense of pay increases all mean that euro-zone wage growth will remain subdued. This should reassure the ECB that the labour …
As we expected, the Norges Bank laid the groundwork this morning for the start of a tightening cycle, later this year. But we think it will raise interest rates sooner and faster than it currently projects. This morning’s decision by the Norges Bank to …
Services will continue to hold back trade recovery The euro-zone’s goods trade surplus narrowed in January, partly reversing some of the widening since last April. Looking ahead, goods exports should grow fairly steadily this year on the back of the …
We suspect that the ECB will be more tolerant of inflation in the future than it has been in the past. In particular, it is likely to look through a short period of above-target inflation this year. And even if both headline and core inflation remained …
A new wave of coronavirus cases in Europe, and the pause in usage of the AstraZeneca vaccine, raises the risk that the EU will fall even further behind the UK and US in its recovery from the pandemic. Europe is falling behind in the race between …
17th March 2021
Inflation to resume its upward path The detailed breakdown confirmed that the drop in core inflation in February was largely due to the reversal of temporary factors which pushed it up in January. Looking ahead, we think higher energy inflation and the …
Unlikely to rise much further Swedish inflation came in weaker than expected in February, and we continue to expect the Riksbank to keep the repo rate on hold for the foreseeable future. The fall in the headline CPIF inflation rate in February, from 1.7% …
15th March 2021
The recent technical adjustments to the Danish Nationalbank’s monetary toolkit simplify the policy framework and are not intended to alter the policy stance. But with the Danish krone at its strongest level against the euro since September 2017, and at a …
12th March 2021
With infections rising and restrictions being tightened, we expect Italy’s economy to do little more than stagnate in the first half of the year. Activity in the retail and hospitality sectors will contract again, but that should be at least partly offset …
After weeks of indecision the ECB pledged yesterday to make “significantly higher” bond purchases in the coming quarter. (See here .) As weekly purchases since New Year have averaged €14bn, anything less than €20bn would, in our view, not be …
Oh no, not more ECB QE! The SNB would have been forgiven for being a bit perturbed by the dovish message from the ECB yesterday that it expects the pace of its asset purchases to be “significantly higher” in the coming quarter. After all, the prospect of …
Shortages weighing on car production, but demand strong Industrial production rose in January and the business surveys suggest that, despite some supply-chain problems, the outlook is fairly bright. While domestic demand looks set to grow slowly by …
The increases in Swiss, Swedish, and Norwegian government bond yields over the past month or so have illustrated the extent to which smaller bond markets get dragged around by global conditions. As has been the case since the start of the pandemic, the …
11th March 2021
The ECB’s statement that it expects the pace of its PEPP purchases to be “significantly higher” in the coming quarter suggests that it will, at a minimum, resist further upward pressure on bond yields and is consistent with our forecast that sovereign …
