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Just as the Greek economy was getting back on its feet the coronavirus pulled the rug from under it. And while the government’s generous fiscal support will cushion the blow, it also raises questions over debt sustainability once this is all over. Last …
5th May 2020
The German constitutional court ruling today will not bring the ECB’s asset purchase programme to a sudden end. But it highlights that a successful legal challenge to the its policies in the future could contribute to increased tensions in the bond …
Q1 data underplay scale of economic disruption in Sweden The comparatively small fall in Swedish GDP in Q1 appears to owe as much to a strong January and February as Sweden’s lighter-touch lockdown. Accordingly, today’s data underplay the scale of the …
Sweden’s light-touch lockdown offers limited solace for industry While Sweden’s less stringent lockdown has received a lot of attention, today’s data add to the evidence that economic activity there has not fared much better than elsewhere in Europe. The …
4th May 2020
It has been a busy week in the euro-zone with lots of data releases and the scheduled ECB monetary policy meeting yesterday. Stepping back, we have learnt three main things from the data. First, the slump in the first quarter was in line with our …
1st May 2020
KOF Barometer is feeling under the weather The unprecedented scale of the Covid-related economic carnage has seen previously reliable relationships between business surveys and output break down in many countries, and Switzerland is no exception. While …
Given the toxic combination of Covid-related disruption and precipitous plunge in oil prices, we think that the Norges Bank’s easing cycle has further to run. Whereas financial markets are pricing in only a small chance of further loosening, we have …
The ECB’s failure to step up its asset purchase programmes at today’s monetary policy meeting will leave investors with nagging doubts about its commitment to underwrite government borrowing during the coronavirus crisis. Eventually, however, the lack of …
30th April 2020
Economy to recover only slowly from April trough Italy’s economy experienced a bigger contraction than the euro-zone average in Q1. And the closure of non-essential businesses at the end of March means that it is set for a much deeper downturn in Q2. The …
Shocking data boosts case for more ECB support The blizzard of depressing economic data released this morning confirms that the euro-zone economy was in freefall at the end of March, with GDP dropping by a record amount throughout the region. This should …
Barometer underplays scale of economic damage Despite registering its largest monthly fall on record in April, the KOF Economic Barometer appears to underplay the havoc that has been wreaked on the Swiss economy. While the government has begun to ease the …
Historic collapse in activity and worse to come Lockdown measures to contain the coronavirus caused unprecedented quarterly contractions in GDP in France and Spain in Q1. And with the restrictions set to remained unchanged until mid-May and then be lifted …
Although restrictions are set to be lifted in the coming weeks, economic activity in the euro-zone will remain significantly below pre-virus levels for a long period. Consumers are likely to be wary of crowded places, some restrictions will remain in …
29th April 2020
More evidence of sharp downturn but cushioned by bank lending The largest-ever slump in the EC Economic Sentiment Indicator in April comes as no surprise but, along with the 3.9% q/q fall in Belgian GDP in Q1, it underlines the depth of the euro-zone’s …
There is some room for cautious optimism on Italy, at least for the near-term. Daily new infections are falling, the government has begun to exit its lockdown, and bond spreads are narrowing. With this in mind, we answer five key questions about how the …
28th April 2020
This morning’s decision by the Riksbank to leave its repo rate and crisis-related policy settings unchanged did not come as a big surprise. Nonetheless, it kept the door open for a rate cut, and we think that a return to negative interest rates is likely …
Italy and Spain suffering most, but some encouraging signs The Bank Lending Survey highlights the fact that demand has fallen much further in Italy and Spain than elsewhere. But it also suggests that loan guarantees and the ECB’s cheap loans to banks are …
Despite imposing less draconian measures than elsewhere, the economic impact of Sweden’s ‘lockdown’ is not far short of that in France, for example. Accordingly, Sweden’s experience pours cold water on hopes that lifting restrictions in other countries …
24th April 2020
That the euro-zone business and consumer surveys for April, published this week, would be catastrophically bad was never in doubt. Even so, they still managed to be even worse than predicted. The Composite PMI sank to a record low, below even the …
Norwegian economy sideswiped by Covid-19 Statistics Norway took the award for this week’s most irrelevant data release, with the unemployment rate from way back in February, but it more than made amends with the ahead-of-schedule publication of its Q1 GDP …
More confirmation of massive slump The Ifo has echoed the message from the PMIs published yesterday that Germany’s economy took a nose-dive in April, with the manufacturing sector following the services sector into a deep recession. The decline in the …
The €750bn Pandemic Emergency Purchase Programme now looks too small. The less EU leaders achieve, the more the ECB will have to do. Further increase in bond purchases very likely, perhaps with explicit yield cap. The ECB has ramped up its asset purchases …
23rd April 2020
Having pulled out all the stops since its last scheduled policy meeting, in February, we suspect that the Riksbank will take stock next week. However, as the focus shifts away from monetary firefighting, we think that the Bank will return to negative …
Activity grinding to a halt April’s PMIs are shockingly bad and suggest that economic activity has all but ground to a halt. Some virus containment measures are now being lifted, but output will be very weak for many more months. Comparing the PMIs to GDP …
Fall in confidence understates crash in consumption The slump in the EC euro-zone consumer confidence index in April was another record decline. However, the index excludes data for Italy and almost certainly understates the true extent of the …
22nd April 2020
The ECB’s record pace of asset purchases is proving insufficient to bring bond spreads down. We think that it will need to step up the pace of purchases further, as well as expand the overall size of the Pandemic Emergency Purchase Programme well beyond …
Proposals for a major, joint fiscal initiative are under discussion again ahead of tomorrow’s EU leaders’ meeting. But the gulf between those in favour and against looks too large to bridge. As a result, the ECB will have no choice but to expand its …
Low levels of government debt mean that Switzerland and the Nordic economies are comparatively well placed to withstand the acute stresses being placed on the public finances – particularly compared to the euro-zone. That said, output everywhere will take …
21st April 2020
Overview – The lockdown has triggered the biggest economic slump since WW2 with activity likely to drop by around 20% in Q2. As the peak of the epidemic passes, restrictions will be lifted gradually, and household consumption will pick up again. But …
ZEW rebounds but weak recovery lies ahead The sharp rebounds in the ZEW Economic Sentiment Indicators for both Germany and the euro-zone in April suggest that investors are now expecting some recovery from the complete collapse in activity over recent …
The ECB is now buying assets at a record pace, but it is still struggling to keep a lid on bond yields. Last week the Bank bought over €35bn of assets, far more than the previous high of just under €25bn. Nevertheless, peripheral bond yields have begun to …
17th April 2020
Switzerland announces its exit plan In the week when Danish children under 11 returned to school, Switzerland announced yesterday that it too will start to ease its containment measures from 27 th April. Its three-phase plan foresees allowing small …
The Bank of France floated the idea recently that the ECB could use “helicopter money” to channel funds to companies after the worst of the current crisis has abated. While this idea has some attractions, there would be substantial political and practical …
15th April 2020
Core inflation set to fall even further below target While the decline in headline inflation in Sweden in March owed much to lower energy prices, persistently below-target core price pressures and the virus-related economic slump opens the door to further …
The Eurogroup’s agreement on €540bn, or 4.5% of GDP, of support for responses to the coronavirus crisis falls a long way short of the large-scale joint fiscal boost which many euro-zone governments had argued for, and which would have done more to contain …
10th April 2020
Economic activity in Spain has collapsed as a result of the measures to contain the coronavirus. And even if the government begins to lift some of the restrictions next week, as it has suggested, the recovery will be very slow, particularly in the …
9th April 2020
The Bank of France this week provided some more granular evidence of the extent of the slump in its economy. Based on a survey of 8,500 managers undertaken during the lockdown, it estimated the economy was running around 32% below normal levels. It also …
Norwegian economic activity falls off a fjord The release of February GDP data from Norway on Tuesday showed that the mainland economy was far from a picture of health even before the ramp-up in containment measures in mid-March. Measured in 3m/3m terms, …
The ECB is using its balance sheet aggressively to provide cheap funding to banks and support peripheral government bond markets. But there is no guarantee that banks will maintain their volume of lending to the real economy, and there is a risk that the …
8th April 2020
The scale of the economic damage in Switzerland and the Nordics following the imposition of draconian virus-related containment measures is becoming all too apparent. Business surveys have plunged across the board, and the statistical agency in Norway …
Rising chance of further Norges Bank rate cuts While core inflation in Norway remained slightly above policymakers’ target in March, the precipitous plunge in economic activity raises the chance that Norway will join the sub-zero interest rate club. The …
Government loan guarantees will help to limit the damage to banks from defaults in the short term. But the banks will inevitably be weakened by the crisis, leaving them with more non-performing loans and less capital. This will constrain their ability to …
7th April 2020
The fact that almost one-third of the Swiss workforce has reportedly applied for short-time work is a sobering illustration of the scale of the virus-related economic disruption. While the headline Swiss unemployment rate remained below 3% in March, we …
The euro-zone is experiencing an unprecedented collapse in economic activity. (See Chart 1.) We suspect that GDP will be roughly 25% below its pre-crisis level during the lockdowns, with the scale of devastation varying between countries. Many sectors of …
6th April 2020
Italian construction projects put on ice March’s construction PMIs add to the evidence that activity across the euro-zone has taken a big hit, while Italy’s stricter virus containment measures have had a catastrophic effect on output. The drop in the …
Activity in some large parts of Italy’s economy – including manufacturing – appears to be down by more than 50%. Even if the lockdown is relaxed in May, we think that GDP will fall by about 10% this year. The latest economic data in Italy have been pretty …
3rd April 2020
This week has brought yet more evidence that the containment measures in place across the euro-zone have caused economic activity to collapse. The final Composite PMI for the region for March showed that the slump in private sector activity was even …
Sweden’s services PMI is even worse than it seems In ordinary times, the 9.5-pt fall in Sweden’s services PMI in March, from 56.4 to an 76-month low of 46.9, would be enough to make you choke on your filmjölk . After all, the monthly decline was the …
Surveys confirm that Italian economy is grinding to a halt The PMIs show that activity in Italy and Spain plummeted even before the authorities in both countries shut down all non-essential businesses. Euro-zone GDP is almost certain to fall at a record …
The imposition of strict social distancing controls across the continent means that economic activity in the euro-zone is likely to slump even further than we had assumed two weeks ago. For the duration of the lockdowns, economic activity is likely to be …
2nd April 2020
