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Euro-zone core inflation is likely to rise this year as the temporary VAT cut in Germany expires and last year’s sharp falls in holiday and clothing prices are reversed. However, the inflation rate will remain very low, and we do not expect any sustained …
6th January 2021
Weak December bodes ill for start of 2021 The downward revision to the euro-zone’s Composite PMI for December suggests the economy ended 2020 on a slightly weaker note than previously thought. With restrictions being extended and tightened in many …
The lockdowns implemented at the end of last year did not lead to another surge in bank lending, probably because they were less strict and more focused on limiting social activity. But if lockdowns are extended or made more draconian, firms’ demand for …
5th January 2021
Deflation on the way out, but SNB will keep policy unchanged Swiss inflation is likely to climb out of deflationary territory over the coming months. However, it is still set to remain very weak over the coming years, and does not change the picture for …
The virus data for the holiday period in the euro-zone are not as alarming as those for the UK, but they will force governments to extend and intensify restrictions in the coming weeks. As a result, economic activity looks less likely to pick up in Q1 …
4th January 2021
Industrial sector carried momentum into 2021 The strong set of December manufacturing PMIs from Switzerland and the Nordics indicates that industry started 2021 on the front foot, supported by robust activity in Asia. This bodes well for Q1 and will have …
Yesterday’s approval of the first vaccine by European authorities marked the start of the roll-out of COVID-19 vaccines in the EU, which we expect to lead to a lifting of restrictions in Q2. However, the gradual pace at which production is being ramped …
22nd December 2020
Blue Christmas Euro-zone consumer confidence rose in December despite the tightening of virus containment measures in many countries. But it remained very low, and with the virus spreading quickly and a new threat emerging from the UK virus mutation, …
21st December 2020
US Treasury not on the SNB’s Christmas card list The SNB’s final policy meeting of the year (see here ) was overshadowed by the news on Wednesday that the US Treasury designated Switzerland, along with Vietnam, a “currency manipulator” in its latest …
18th December 2020
With this being our final Weekly of 2020, it seems like a good opportunity to cast an eye back over this year, and draw some lessons for next year too. Lesson 1: acknowledge the uncertainty We aren’t going to be too harsh on ourselves for not seeing the …
Buoyed by strength in industry The increase in the Ifo Business Climate Index for December supports our view that Germany will avoid a contraction in Q4. But the new tightening in coronavirus restrictions, which came into effect this week, means that …
As was widely expected, the Norges Bank left its policy rate on hold at zero this morning. However, it brought forward the projected start of rate hikes and signalled that it will retighten macroprudential policy next year, which confirms our view that …
17th December 2020
Inflation pressures remain very subdued The breakdown of November inflation showed that falling prices for tourism-related services remain a major drag on headline and core inflation, which were unrevised from the flash estimates. Looking ahead, inflation …
This morning’s decision by the Swiss National Bank to keep its policy settings unchanged was pretty much a foregone conclusion. Looking ahead, the SNB will brush off being branded a ‘currency manipulator’ by the US Treasury but is still likely to be less …
Welcome recovery in PMIs, but activity still depressed The rebound in the Composite PMI in December to just below 50 primarily reflected the partial lifting of virus restrictions in France. But with Germany now imposing tougher measures, the big picture …
16th December 2020
Industry to hold up well in Q4 October’s increase in euro-zone industrial output marked a decent start to the quarter and we think that production will rise in Q4 as a whole. Industry has been largely unaffected by the more targeted second-round lockdown …
14th December 2020
As well as being a game-changer for economic prospects next year (see here ), the positive news on the vaccine front has also helped to ease the upward pressure on the Swiss franc against the euro. The franc briefly dropped to its lowest level of 2020 …
11th December 2020
Riksbank keeps all options on the table The minutes from the Riksbank’s policy meetings are never what one would call page-turners. However, the account from the November meeting (released on Monday) was a bit more interesting than usual given that two of …
This week has brought little festive cheer on the virus front, with France announcing that with daily new infections no longer falling rapidly, many of the restrictions will stay in place for three more weeks, with an 8pm curfew only lifted for Christmas …
We do not expect the Swiss National Bank or the Norges Bank to throw up any festive surprises at their final policy announcements of the year next Thursday (17 th December). Vaccines point to brighter times next year, but we still think that both will …
10th December 2020
The ECB’s message that it will persist with its flexible asset purchase programme until at least early 2022 should reassure investors that there will not be a reversal of the compression of bond yields anytime soon. Beyond then, there is a little more …
Core inflation in Norway to drift lower next year The sharp fall in Norwegian inflation in November was skewed by energy effects, but the decline in the core rate underlines that policymakers will be in no rush to raise rates. Meanwhile, the persistent …
The recent tightening in coronavirus restrictions means that Greece’s recovery will shift into reverse in Q4 and the start of 2021 is also likely to be weak. However, the rollout of a vaccine by mid-year should pave the way for a strong rebound in …
9th December 2020
Norway to get away lightly in Q4 The stronger-than-expected increase in mainland Norwegian GDP means that the economy will avoid contracting in Q4 and confirms that it will experience a comparatively modest drop in output in 2020. However, the increasing …
Strong Q3 provides grounds for optimism about 2021 The third estimate of euro-zone Q3 GDP confirmed that the economy staged a rapid rebound from the first lockdowns. This provides grounds for optimism about growth prospects for next year. In Q2, GDP was …
8th December 2020
Manufacturing to keep economy expanding in Q4 Germany’s manufacturing output rose again in October and the signs are that it held up well after the lockdown-lite came into force in November. It now looks as if Germany will be the only major euro-zone …
7th December 2020
Euro-zone GDP looks set to fall in Q4, but the prospect of vaccine rollouts has significantly improved the outlook. We think that containment measures will be scaled back when the most vulnerable members of society are inoculated, which will probably be …
4th December 2020
Swedish services PMI defying gravity, for now The strong set of manufacturing PMIs from Switzerland and Sweden in November mirrored the survey from Germany and did not come as a huge shock. The pick-up in Sweden’s services PMI, released yesterday, was …
We think that the spreads of “peripheral” government bonds in the euro-zone are likely to fall next year to levels not seen since before the region’s sovereign debt crisis and that they will stay low over the next decade. This reflects our view of the …
Brighter times ahead The week’s data releases have been a mixed bag. The good news is that retail sales rose by 1.5% m/m in October which lifted them to 3.1% above their February level. But things have taken a turn for the worse since then. The services …
We think the dispute with Hungary and Poland over the EU’s multiannual budget will be resolved one way or another and the EU will start to disburse the Recovery Fund during the first half of next year. This will lift GDP a little in some countries over …
The Bank will play down the chances of a quick return to economic health. We expect it extend the PEPP until at least mid-2022 and announce more TLTROs. But the Governing Council will probably leave the deposit rate unchanged. Policymakers at the ECB have …
3rd December 2020
PMIs highlight differing effects of national lockdowns October’s increase in euro-zone retail sales took them well above their level in February, but they are almost certain to have dropped back in November. And the PMIs suggest that activity in the wider …
Large revisions cloud labour market picture Unusually big revisions to the back data show that the euro-zone labour market was in worse shape over the summer than previously indicated. The jobless rate now appears to be falling, but the recent tightening …
2nd December 2020
Deflation on its way out, but SNB will keep policy unchanged The current period of deflation in Switzerland will start to ease in early 2021, and the headline rate is likely to edge back into positive territory by March. However, this won’t be a …
The ECB has said it is prepared to reduce its deposit rate further below zero. However, since any economic benefits would be small and it would be politically unpalatable to some on the Governing Council, we expect the Bank to instead focus on the TLTROs …
1st December 2020
Core inflation rate to remain well below target The stability of euro-zone core inflation at just 0.2% in November is further evidence that the decline in inflation this year has not been primarily due to temporary factors. Both headline and core …
Industrial boom to help offset services slump The strong set of manufacturing PMIs from Switzerland and the Nordics in November suggests that the industrial rebound gathered momentum in Q4, in keeping with the picture in German industry. This will help to …
Is Switzerland “doing a Sweden” in Q4? The decline in the KOF Economic Barometer in November adds to signs that the rebound in Swiss GDP shifted into reverse in Q4. However, given the government’s decision to resist a nationwide lockdown, activity in the …
30th November 2020
Sweden in the limelight It has been a Sweden-centric week, rounded off with a raft of economic data released this morning. The most noteworthy of which was the second reading of Q3 GDP, which was revised up from the initial estimate (+4.9% q/q versus …
27th November 2020
Mounting evidence of Q4 contraction Data published this week for November added to the evidence that the euro-zone economy will experience a sharp contraction in Q4, at least by pre-pandemic standards. The Economic Sentiment Indicator declined, and the …
New lockdowns take their toll on sentiment The fall in the EC’s Economic Sentiment Indicator (ESI) for the euro-zone in November was hardly a surprise given the tightening of restrictions. But the ESI is higher than it was in the spring, reflecting both …
Following the run of positive news on the vaccine front, we now expect Switzerland and the Nordic economies to regain pre-virus levels in late 2021. Nonetheless, policymakers will be in no rush to tighten. We recently upgraded our economic forecasts for …
We now assume that vaccines will be rolled out in the euro-zone next year and that most of the restrictions on economic activity are lifted during Q2. As a result, demand rebounds fairly rapidly and GDP increases by around 5% next year, regaining its …
26th November 2020
The account of the last ECB Governing Council meeting confirms that policymakers were becoming more concerned about the outlook for both inflation and GDP growth in late October and that they were preparing to loosen policy in December. The vaccine news …
The announcement this morning by the Riksbank that it has left the repo rate on hold at zero was never in doubt, and positive news on the vaccine front means that we no longer expect it to cut back into negative territory next year. However, the expansion …
Lending growth is likely to pick up in the final two months of the year as firms again take advantage of loan guarantees to replace lost revenues during lockdowns. And the ECB looks set to support bank lending to the real economy by extending its Targeted …
The ECB looks set to announce an increase in the size of its Pandemic Emergency Purchase Programme in December and to extend the time for which it pledges to make net purchases and reinvestments. As a reminder, the Pandemic Emergency Purchase Programme, …
25th November 2020
Strong manufacturing limiting the damage The small decline in the Ifo Business Climate Index for November confirms that the German economy is losing momentum but also that it is holding up much better than many other countries. We suspect that GDP will …
24th November 2020
