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Policy measures from governments and the ECB to keep banks lending during lockdowns appear to have been successful, but as we have argued was likely to happen, loan growth is now slowing. Consumers’ and firms’ ability and willingness to borrow will be …
27th July 2020
The historic agreement reached this week over the EU’s €750bn Recovery Fund has given euro-zone assets a lift. The euro rose from just over $1.14 last Friday to $1.16 at the time of writing, and ten-year Italian bonds yields have fallen from 1.28% last …
24th July 2020
Nordic economies comparatively well placed In case you missed it, we published our Nordic & Swiss Economics Outlook this week. (See here .) The key message is that we forecast the Nordic economies to experience the shallowest recessions in Europe, and our …
Strong rebound might not be sustained The sharp rise in the euro-zone Composite PMI in July is an encouraging sign that the economic recovery continued at a decent pace at the start of Q3. But we suspect that activity will remain below pre-crisis levels …
Recovery in consumption losing momentum The small fall in euro-zone consumer confidence in July is consistent with the message from high frequency data that the recovery in spending may already be slowing. The slight decline in the European Commission’s …
23rd July 2020
The Nordic economies have weathered the Covid crisis comparatively well, and if our above-consensus forecasts for GDP growth this year prove accurate, the region will see some of the smallest falls in output in the whole of Europe. We forecast output in …
21st July 2020
The final agreement on the Recovery Fund was a compromise reached after four days and nights of acrimonious negotiations and is less generous than first proposed. Nonetheless, it marks a historic step towards a limited form of fiscal union and, as such, …
Overview – The economy has partially recovered from the impact of the coronavirus containment measures imposed earlier in the year, but it will be a long time before it gets back to normal. Even if there are no new nationwide lockdowns, we suspect that …
This week, governments in France and Italy suggested more stimulus was in the offing to support their economies’ recoveries, consistent with our view that the fiscal cost of the crisis would end up being much bigger than early estimates suggested. Italy …
17th July 2020
“SNB 101” speech targeted at the US Treasury Thomas Jordan delivered the first-ever virtual IMF Central Banking Lecture on Tuesday, which is named in honour of Michel Camdessus, the longest- serving past IMF Managing Director. The video production had a …
At the press conference following today’s Governing Council meeting, ECB President Christine Lagarde dampened any suggestion that the Bank may not use the full €1.35 trillion in its emergency purchase programme. In fact, we still think it is likely to …
16th July 2020
Industrial recovery lagging retail sales The double-digit increase in industrial production in May was a little short of expectations. Output should increase further in June but will remain significantly below pre-crisis levels throughout this year. This …
14th July 2020
Tighter lending conditions to come, but no repeat of 2008 credit crunch The ECB’s latest Bank Lending Survey suggests that bank lending conditions will tighten in Q3, but by nowhere near as much as during the global financial crisis. This should mean that …
Inflation set to stay stubbornly low The pick-up in Swedish inflation in June was a bit larger than expected but it was driven mainly by energy effects and is not a game changer. And while core inflation also edged up from May, against a backdrop of …
The various high-frequency data series that we have been following in our Recovery Trackers have indicated that activity in the Nordic economies has picked up sharply over the past three months. However, the release of monthly GDP data from Norway for May …
13th July 2020
Nordic economies have weathered Covid well May’s 2.4% m/m rise in mainland GDP in Norway would normally be enough to make you fall of your chair, but it was actually a bit underwhelming given the rapid rebound in our Recovery Tracker since lockdown …
10th July 2020
This week brought further evidence that the early stages of the euro-zone’s economic recovery looked remarkably V-shaped. Admittedly, industrial production data for Germany published on Monday showed a weaker-than-expected rebound in May. But industrial …
Krone-driven boost to inflation to peak in H2 Previous falls in the krone will ensure that inflation stays above the Norges Bank’s target throughout H2. Nonetheless, this effect will fade in early-2021 and policymakers will be in no rush to raise interest …
The ECB is very unlikely to change policy next week... … but we think it will reiterate its willingness to do more if needed… … and, later in the year, expand the PEPP even further. We don’t expect any changes to ECB policy next week, but Christine …
9th July 2020
Euro-zone unemployment now seems likely to peak at a lower rate and about a year later than we had previously forecast, mainly due to the widespread use of short-time working schemes. But the partial economic recovery means unemployment will fall back …
The pick-up in mainland Norwegian GDP in May was a tad underwhelming, with the economy’s recovery now seeming to follow a shallow “U” rather than the deep “V” seen in the euro-zone. Nonetheless, the total loss of output this year is set to be much smaller …
8th July 2020
Euro-zone bank lending growth has jumped in recent months, as firms borrowed to tide themselves over while their revenues collapsed during lockdown. (See Chart 1.) At the same time, banks’ willingness to lend has been boosted by government loan guarantees …
7th July 2020
The post-lockdown rebound has been quicker than we anticipated, so we are revising up our euro-zone GDP forecast from -12% to -7% for 2020. That does not alter our view that the economy will remain below its pre-crisis level for a long time yet, and that …
The slump in euro-zone GDP in March and April was just as large as we had feared, but the subsequent recovery has been quicker than we expected. As a result, we now think that GDP probably contracted by “only” around 12.5% q/q in Q2, though the falls in …
Industry rebounding much more slowly than retail May’s increase in German industrial production left it still well below pre-crisis levels. But with retail sales rising more rapidly, overall economic activity is picking up a little more quickly than we …
Consumption recovering, industry taking longer to find its feet Euro-zone retail sales rebounded sharply in May, but spending will still have collapsed in Q2 as other types of spending remained weak. Meanwhile, industrial production is recovering more …
6th July 2020
Nordics gathered momentum into H2 The June PMI surveys from the Nordics, released this week, add to the evidence that the region’s economies are further down the road to recovery than others in Europe. In Sweden, there was plenty to be encouraged by in …
3rd July 2020
News that German consumers went on a spending spree in May has raised hopes that the recovery will be V-shaped after all and that things will soon be back to normal. We think that only the first part of this is true. The rebound will look like a V, at …
Activity increasing but job prospects look grim The sharp increases in the euro-zone PMIs in June suggest that activity is bouncing back quite quickly, but remains far lower than before the crisis. The PMIs also point to continued declines in employment. …
Bigger rises in unemployment lie ahead The trivial rise in unemployment in the euro-zone reflects the success of short-time working schemes in protecting jobs but also an increase in “inactivity” as people have been unable to look for work. As these …
2nd July 2020
Switzerland set for a prolonged period of deflation The lack of price pressures in Switzerland is nothing new, but will ensure that the SNB remains poised to combat bouts of upward pressure on the franc for the foreseeable future. The headline inflation …
The Riksbank has put its money where its mouth is when it comes to expanding its balance sheet, but in our view all roads still lead to a return to negative interest rates, either in late-2020 or early-2021. While the Riksbank’s decision to leave the repo …
1st July 2020
Swiss manufacturing struggling to shake off crisis The manufacturing PMIs from June add to the evidence that activity in Sweden and Norway has recovered comparatively quickly, but suggest that Swiss manufacturing is taking longer to find its feet. The …
Inflation to remain far below target The increase in euro-zone headline inflation in June was entirely due to higher energy inflation, while the core rate edged down and looks likely to fall further over the rest of the year. Headline inflation rose …
30th June 2020
Barometer underwhelms but retail sales bounce back The underwhelming increase in the KOF Economic Barometer in June is at odds with the chunky rise in the euro-zone PMIs. Nonetheless, the surge in Swiss retail sales in May shows that the economy has …
While the proposed joint EU fiscal response has been hailed by some as a “Hamilton moment”, the central budget will be just one-quarter as large as a share of GDP as US federal firepower was in the 1790s. In the absence of greater tax-and-transfer powers, …
29th June 2020
Confidence rebounds but still weak The increase in the EC’s Economic Sentiment Indicator for June was the largest one-month rise on record. However, it was not as big as expected and leaves the index consistent with activity remaining well below its …
It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to …
Nordic consumers splash the ‘cash’ Retail sales data for May released this week show that consumers in the Nordics have splashed the cash since lockdowns have been eased (figuratively speaking, of course, given that cash usage is increasingly rare in …
26th June 2020
This week kicked off with growing fears of a second wave in Germany, as the all-important R number jumped from around 1 to almost 3 last weekend. But as we argued here , the localised nature of the outbreaks and better monitoring mean that there is …
The current burst of bank lending suggests that governments’ loan guarantees and the ECB’s TLTROs are having the desired effects. Now that economies are re-opening, corporate revenues should begin to recover, making firms less reliant on state-backed …
The ECB has used the minutes of this month’s policy meeting to try to defuse the dispute in Germany over the legality of its asset purchase programmes. Helped by the Bundesbank, this should be enough to smooth things over for now. But future court cases …
25th June 2020
While the Greek economy is set to slump this year, it is becoming increasingly clear that the drop in activity will be much less severe than we previously anticipated. We now think that the Greek economy will shrink by “only” 8% or so this year. At the …
While we still expect the Riksbank to cut its repo rate back into negative territory later this year, it is set to keep its powder dry at its policy announcement next Wednesday (1 st July). Recall that the Riksbank left its repo rate unchanged at zero …
24th June 2020
Euro-zone countries seeking to avoid a surge in unemployment have sought to replicate Germany’s short-time working scheme that served it well during the global financial crisis. Germany’s experience suggests that while euro-zone unemployment will probably …
Downturn shorter than feared but will still cast a long shadow The Ifo for June echoes the message from the PMIs published yesterday that the rebound in Germany has been a little faster, and the slump in GDP probably smaller, than we had anticipated. …
Rapid recovery but still below pre-virus levels The rise in the euro-zone flash Composite PMI in June confirms that economic output in the region is continuing to recover rapidly from April’s nadir as restrictions are progressively eased. But economic …
23rd June 2020
More evidence of a rebound in consumption Consumer confidence in the euro-zone increased for the second consecutive month in June, adding to the evidence that household consumption rebounded sharply after the lockdowns were eased. The rise in the EC …
22nd June 2020
The increase in coronavirus cases in Germany is a reminder that the virus has not been eradicated and suggests that local restrictions may be re-imposed periodically in the coming months. But for now, the increase seems too small and localised to pose a …
Shallower downturns forecast in the Nordics Amid increasing signs that the Nordic economies have weathered the Covid crisis better than most (see here ) we have upgraded our forecasts for GDP growth over the coming years. (See Table ) As flagged in an …
19th June 2020
