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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 …
27th November 2020
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
Darkness before the dawn The drop in the Composite PMI to well below 50 adds to the evidence that the euro-zone economy will post another sizeable contraction in Q4. But with vaccines looking increasingly likely to be rolled out in the first half of next …
23rd November 2020
Confidence likely to remain low for a while The fall in consumer confidence in November suggests that good news about the vaccine has not done much to improve sentiment in the euro-zone. With the virus still spreading quickly and lockdowns likely to be …
20th November 2020
The cavalry are coming, but not for a few months We are increasingly optimistic that vaccines against COVID-19 will be distributed at least to priority groups in the first half of next year . There are logistical challenges but they look manageable. (See …
Minkgate rumbles on in Denmark The political wrangling in Denmark following the outbreak of COVID-19 in the country’s mink farms shifted up a gear this week. The main point of contention remains that the government did not have the legal basis to order …
At its December meeting, the ECB is very likely to announce additional TLTRO operations and it may well make their terms even more favourable for banks. In this Update , we review the ways that the ECB could alter TLTROs so that they provide greater and …
The Riksbank is likely to leave its repo rate on hold at zero next Thursday (26 th November). But with the economy heading south, and the ECB gearing up to ease again, we think there is a good chance that policymakers will take the opportunity to expand …
19th November 2020
Low core inflation a strong rationale for more ECB easing Headline inflation is likely to remain below zero for several more months and the COVID-19 restrictions in place throughout the euro-zone will keep core inflation close to zero too. There was no …
18th November 2020
A widespread rollout of an effective vaccine next year should allow a fairly swift return to normality for Spain’s hard-hit tourism sector and would transform the short-term economic outlook. We currently forecast the economy to grow by 4.5% next year, …
There is still a lot of uncertainty about the rollout of a COVID-19 vaccine in Europe, but it now seems likely that it will be delivered to those most vulnerable to the disease by Q2 next year, which would help to reduce the risk of damaging runs on …
17th November 2020
Daily mobility data suggest that, compared to “normal”, the current lockdowns will cause GDP to fall less than half as far as in April. Mobility has fallen most sharply in France and has held up best in Germany. The official data only run up until …
Norwegian economy to start 2021 on the back foot This morning’s release of Q3 GDP data from Norway confirmed that the mainland economy bounced back strongly over the summer. However, new restrictions both locally and in key trade partners mean that the …
It’s always darkest before the dawn The prospect of a vaccine offers hope of faster growth next year than we have factored into our current forecasts. That said, there is less scope for a “vaccine bounce” in Switzerland and the Nordic economies in 2021 …
13th November 2020
The announcement on Monday of Pfizer & BioNTech’s successful trial of their COVID-19 vaccine was unambiguously good news that sent European stock markets earlier this week to their highest levels since early March. The widespread distribution of a highly …
Third quarter rebound will be partly reversed in Q4 The second estimate that euro-zone GDP rose by 12.6% q/q in Q3 was little different to the “preliminary flash” estimate published a fortnight ago and means that GDP was 4.4% below its Q4 2019 level. …
The vaccine offers hope of faster growth next year than we have factored into our current forecasts. However, the recent surge in virus cases in Switzerland (see Chart 1.), the rising strain on the healthcare sector in Sweden, and steps taken to contain …
12th November 2020
Industrial production should increase in Q4 despite new lockdowns September’s decline in euro-zone industrial output was largely due to the reversal of temporary effects in Italy, rather than a result of the second wave of COVID-19. We expect industrial …
Weak core inflation set to persist The October inflation data from Sweden do not move the needle for policymakers. However, the persistent weakness of underlying price pressures is likely to remain a headache for the Riksbank over the coming years. CPIF …
In her opening remarks to today’s ECB Forum on Central Banking, President Christine Lagarde gave a clear message that encouraging news about a vaccine would not stop the Bank from loosening policy in December. An expansion of the PEPP, and additional …
11th November 2020
The news that mutated versions of SARS-CoV-2 have been transmitted from minks to humans in Denmark has raised fears that the goalposts for a vaccine may have already shifted. This Update answers six key questions about the new strain of the virus and its …
While an effective vaccine would greatly improve the outlook for next year, the latest data show that the virus is still spreading rapidly. Unless this is reversed soon, the one-month lockdowns in place in many euro-zone countries may be extended, keeping …
10th November 2020
Norwegian inflation set to fall back next year While Norwegian inflation edged further above target in October, it is set to fall back sharply in H1 2021 and so the Norges Bank will be in no rush to raise interest rates. The small increase in the …
If an effective vaccine is rolled out in the euro-zone in the coming months, it would lead to stronger growth next year but slower growth in 2022. With light at the end of the tunnel, policy support may be just as generous in the short term and be more …
9th November 2020
Italy’s new tiered COVID-19 restrictions are likely to cause GDP to fall by about 2.5% q/q in Q4, and there is a risk that government is forced into a more severe national lockdown. That said, the news today on a potential vaccine is an upside risk to our …
A survey of firms from France’s central bank and high frequency mobility for last week suggest that the new national lockdown will have a smaller impact on France’s GDP than the first, perhaps of “only” 8%-points. This is broadly in line with our own …
Recoveries are on borrowed time In case you missed it, we cut our near-term GDP forecasts this week following the imposition of new national lockdowns in parts of Europe. (See here .) The virus was spreading rapidly in Switzerland when we published our …
6th November 2020
Downside risks become central forecast This week, the downside risks to our forecasts continued to crystalise. First, the economic data added to the evidence that activity was slowing even before the new lockdowns in Germany and France were implemented. …
Industry should be resilient during second lockdown Germany’s manufacturing sector should be able to continue its recovery in the fourth quarter, even as much of the hospitality sector is closed down again. The 1.6% m/m increase in industrial production …
Euro-zone economic activity looks set to slow sharply again in November and to remain weak for a while beyond that. The number of patients in intensive care units is rising rapidly (see Chart 1.) and we suspect that the new restrictions will bring the …
5th November 2020
As expected, the Norges Bank did not set off any fireworks this morning, and the decision to leave its key interest rate on hold at zero was never in doubt. The economy is likely to prove comparatively resilient during the second wave, but we still expect …
Retail sales fall before new restrictions introduced September’s data show that euro-zone retail sales were coming off the boil even before many non-essential retailers were forced to shut up shop. Online spending will probably pick up again, but by …
Rebound set to shift into reverse in Q4 The 4.3% q/q increase in Swedish GDP in Q3 was below both our and the consensus forecast, but leaves the economy on track for a comparatively shallow drop in output this year – broadly in line with the record …
While Switzerland has not yet followed France and Germany in announcing a new national lockdown, we now expect GDP to contract in Q4, broadly in line with the euro-zone. Meanwhile, although the Nordics economies will remain comparatively resilient, we …
4th November 2020
The new lockdowns in Germany and France, as well as the stricter virus containment measures in other countries, are likely to cause low inflation in the region to become even more entrenched. The lockdowns being implemented across the euro-zone are …
A bleak winter ahead The final Composite PMIs suggest that economic activity in the euro-zone flat-lined in October. But with countries throughout the region entering new lockdowns or substantially tightening restrictions in November, the euro-zone …
We now expect euro-zone GDP to contract by 3% q/q in Q4 and to be unchanged in Q1 2021, based on the latest lockdown measures staying in place for three months. A return to the stricter measures of the first wave, which is a quite plausible, would result …
3rd November 2020
Absence of price pressures limits the SNB’s options The absence of price pressures in Switzerland will remain a headache for the SNB over the coming years. And with the ECB set to loosen policy again next month, Swiss policymakers’ focus will remain …
We think that the Swedish krona will appreciate a little further against the euro and the dollar in 2021, but doubt that it will remain one of the best-performing G10 currencies, as it has been this year. The Swedish krona has been the …
2nd November 2020
Ongoing industrial rebounds to provide limited cheer The positive set of manufacturing PMIs for October suggest that the industrial rebound gathered momentum at the beginning of Q4. However, this is of little comfort given the imposition of new lockdowns …
Smaller, but perhaps longer, hit to the economy This week has seen governments in France and Germany impose new national lockdowns in an effort to bring the virus under control. In both cases, all restaurants, bars, sports and entertainment venues will be …
30th October 2020
Time running out on Swiss recovery Data published on Friday showed a smaller-than-expected fall in the Swiss KOF Economic Barometer in October, from a downwardly-revised 110.1 in September to 106.6. This left it above its February level and suggests that …
