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Low inflation and lockdowns pile pressure on policymakers The post-lockdown rebound in euro-zone GDP was stronger than anticipated, which provides some hope that eventually things may get back to normal more rapidly than feared. But in the meantime, the …
30th October 2020
Record growth is of no comfort The massive increase in GDP in Q3 is of no comfort to French policymakers or households, who are now contending with a second national lockdown. Indeed, we expect GDP to fall by 2.5% q/q or so in Q4. The 18.2% q/q increase …
The ECB left its policy settings unchanged at today’s meeting, but explicitly stated that it would “recalibrate” them in December. We think this will include an increase in the size and duration of the PEPP and lower TLTRO interest rates. More radical, …
29th October 2020
The Norges Bank will almost certainly leave its key interest rate on hold at zero next Thursday and will probably reiterate that it is in no rush to hike. However, given the backdrop of rising house prices, we think that policymakers will start to …
We think the one-month national “lockdowns” will result in GDP contracting by around 2.5% q/q in France in Q4 while in Germany GDP will be flat at best. There is obviously a big risk that the lockdowns stay in place for much longer than a month, are …
Recovery is over The fact that the EC’s euro-zone Economic Sentiment Indicator (ESI) was unchanged in October was a bit surprising given the surge in virus cases and associated restrictions in recent weeks. With governments ramping up curbs to slow the …
Outperforming at the start of Q4 The rise in Sweden’s Economic Tendency Indicator (ETI) in October came as a bit of a surprise given the recent surge in COVID-19 cases there and suggests that the economic recovery – which monthly GDP data suggest had …
28th October 2020
Tightening bank lending standards another headwind The ECB’s Bank Lending Survey shows that bank lending conditions tightened in Q3. And there is a growing risk that they tighten further in Q4, just as economic activity has begun to slow again. The …
27th October 2020
Recovery slowing and set to get worse The small decline in the Ifo Business Climate Index provides more evidence that Germany’s recovery is running out of steam. We expect GDP to increase slightly in the fourth quarter thanks to the ongoing, slightly …
26th October 2020
Risks to the outlook tilted to the downside This week has brought more gloomy news on COVID-19, with virus cases in the euro-zone continuing to rise at a rapid rate and, as we expected, governments responding by ramping up restrictions. In Ireland, for …
23rd October 2020
Nordics not immune, but comparatively resilient In case you missed it, we released our latest Nordic & Swiss Economics Outlook this week. Of course, virus developments are the key uncertainty. However, assuming that the Nordics continue to avoid the scale …
Services sector dragging the economy down The further decline in the euro-zone Composite PMI in October is consistent with our view that the second wave of COVID-19 infections, and the new raft of containment measures, will cause the economy to stagnate …
We think that Swiss policymakers would be prepared to match any small interest rate cut by the ECB, albeit reluctantly. However, if policymakers in the euro-zone opt to ease policy in other ways, as we think is more likely, this may help to reduce …
22nd October 2020
More restrictions to weigh on sentiment Given the surge in virus cases and new restrictions over the past few weeks, it was no surprise that euro-zone consumer confidence deteriorated in October. With governments ramping up their restrictions on “social …
PEPP “envelope” likely to be raised in December, perhaps to €2trillion. ECB may also cut the interest rate charged on TLTROs. A deposit rate cut unlikely unless the euro appreciates further. With the economy flagging again, policymakers at the ECB are …
We think that the second wave of COVID-19 infections and new containment measures will cause the euro-zone economy to stagnate over the next six months or so. In quarter-on-quarter terms, GDP would still increase slightly in Q4, but it would mean zero …
20th October 2020
Having outperformed in H1, the Nordic economies are set for some of the smallest falls in output in Europe this year. Of course, the virus is the key uncertainty for the outlook, but it is encouraging that Denmark’s second wave already looks to have …
Overview – The second wave of coronavirus has caused the recovery to stall and we forecast euro-zone GDP to stagnate for the next six months, with an outright recession a significant downside risk. We think Spain’s economy will probably contract in Q4, …
19th October 2020
Growth to slow sharply in Q4 COVID-19 infections continue to rise and the authorities have tightened their restrictions further. (See here .) In a few countries (e.g. Ireland and the UK), public health officials have recently advocated so-called “circuit …
16th October 2020
Switzerland in the grip of a second wave The share of virus tests returning positive results in Switzerland doubled in the first two weeks of October and mirrored similar rises seen in Italy and the UK over the same period. At about 7%, the positivity …
September the low point, but inflation will stay subdued Core inflation is likely to edge up from the record low to which it fell in September. However, weak aggregate demand will keep it very subdued for the foreseeable future. Headline and core …
With the virus spreading rapidly, governments are ramping up their containment measures. The new restrictions will be more targeted, regional and time-specific than in the first wave, but they are still likely to cause a new contraction in the services …
14th October 2020
Industrial rebound slowing but not going into reverse The recovery in euro-zone industrial output has slowed but is not going into reverse. The impact of the second COVID-19 wave should be much smaller than the first and will be felt most in the services …
The slowdown in the pace of monthly GDP growth in Norway in August was driven in large part by a fall in consumer spending. The post-lockdown spending splurge on goods appears to have peaked before spending on services was strong enough to pick up the …
13th October 2020
Frustratingly low prices pressures point to further support down the line The larger-than-expected fall in Swedish inflation in September will only strengthen the hand of the dovish contingent of the Riksbank’s Executive Board. We think it is only a …
Data published by Eurostat yesterday underline that there was a large increase in labour market slack. Looking ahead, it is likely to continue to rise sharply. The euro-zone’s unemployment rate has remained very low this year in spite of the collapse in …
9th October 2020
Strong retail sales the outlier, not the norm On the face of it, normality appears to have returned to at least one part of the euro-zone economy. Data this week showed a strong rise in retail sales volumes in August, to 3% above their pre-virus level. …
Who’s afraid of the Big, Bad US Treasury? Thomas Jordan banged a familiar drum in a speech this week, yet again justifying the SNB’s FX interventions that have seen its balance sheet balloon over the past decade. He also stressed that the Bank’s must have …
August’s strong increase in industrial production in Italy is not as good as it first appears. The timelier surveys point to annual declines in output, and rising virus numbers present a growing threat. Industrial production in Italy jumped by 7.7% m/m in …
The account of the last ECB Governing Council meeting suggests that policymakers were in no hurry to increase the size of the PEPP. There has been more disappointing news on the economy since then, but on balance we still think the Bank will leave the …
8th October 2020
The further slowdowns in monthly GDP growth in Norway and Sweden in August support our view that it will take a long time for output to recover to pre-crisis trend levels anywhere in Europe. The 0.6% m/m increase in mainland Norwegian GDP in August was …
The reimposition of coronavirus restrictions has caused the recovery to stall – if not go into reverse in many countries – with France and Spain most affected. There are tentative signs that the number of new cases is beginning to slow again in Spain, but …
7th October 2020
We think car makers in the euro-zone will be able to keep pace with demand for new vehicles this year, despite having had to introduce social distancing measures to their production processes. Accordingly, we see little risk of the sharp rise in car …
Although the SNB meets the US Treasury’s criteria for a “currency manipulator”, we doubt this would deter it from intervening further in the foreign exchange market if required to keep the franc stable. New data detailing the SNB’s FX transactions confirm …
Recovery far from complete The small fall in German industrial production in August left it a long way below its pre-crisis level, and lagging the industrial rebounds elsewhere in the euro-zone. We think the sector will resume its recovery in the coming …
Recovery may be going into reverse The increase in retail sales to above their pre-crisis level in August overstates the strength of the recovery in household consumption. Spending on travel, hospitality and entertainment will have remained much weaker …
5th October 2020
Second wave peaking in France and Spain The new wave of COVID-19 poses a big risk to the recovery and may cause GDP to contract again in Q4. The worst hit area is the Madrid region of Spain, where the number of intensive care beds occupied by coronavirus …
2nd October 2020
Brighter outlook for the NOK next year Having fallen to four-month lows against the euro in late-September, the Norwegian krone and Swedish krona bounced back this week. While the NOK is vulnerable to falling further in the near term, we think that a …
Inflation to remain far below target even as temporary effects unwind September’s decline in euro-zone core inflation to a fresh record low was partly due to temporary factors that will be reversed in October. And the downward trend in core inflation this …
While it is not clear that inflation expectations are less well anchored than in the past, they are at a low level. With the actual inflation rate falling, this reinforces the case for further ECB policy easing. Christine Lagarde devoted several …
1st October 2020
Small rise a taste of things to come The small rise in the euro-zone unemployment rate in August suggests that the winding back of short-time work schemes is already starting to take its toll on the region’s labour market. With governments set to provide …
Rising order backlogs to sustain industrial rebounds While Swiss inflation has risen since reaching a trough in June, it is likely to stay very weak in the near term. Meanwhile, the positive set of September manufacturing PMIs from Switzerland and Sweden …
President Lagarde’s speech today suggests that she will argue for a higher, symmetric inflation target and a move towards a form of average inflation targeting as part of the ECB’s strategy review. All else equal, this should support continued ultra-low …
30th September 2020
Switzerland comparatively well placed The increase in the KOF Economic Barometer in September, to a fresh decade high, suggests that the Swiss economy gathered momentum going into Q4. While the second waves of virus cases in parts of Europe are a downside …
Although the Norwegian krone has been the worst performing G10 currency so far in 2020 (see Chart 1), we expect it to make up some lost ground in 2021 even if it falls a bit more in the near term. The US dollar rose sharply against most other G10 …
29th September 2020
The resurgence of COVID-19 in the euro-zone has hit Spain the hardest and hospital capacity there is under strain, most notably in Madrid. Restrictions have taken a toll on activity and stricter ones are likely to follow. So there is a serious risk that …
Euro-zone at risk of contraction The small improvement in the EC’s Economic Sentiment Indicator for September was slightly better than anticipated. However, the index remained at a low level, and we suspect that it has not accurately captured the negative …
Having instructed many firms to cease trading during the lockdowns, governments understandably pulled out all the stops to prevent them from going under. However, we expect this support to be gradually withdrawn, causing the number of bankruptcies to …
28th September 2020
Short-time work schemes are not being used as much as they were in the spring, but they still account for about 5% of the labour force. So as euro-zone governments reduce support for jobs (in the way that the UK government announced this week), …
25th September 2020
