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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
Euro-zone unemployment will rise sharply in the coming months but short-time working schemes will help to prevent it from skyrocketing. While this will incur significant fiscal costs, the support to household incomes should mean that consumer spending …
Inflation set to stay below zero throughout 2020 Having fallen further into negative territory in March, Swiss inflation is likely to remain below zero for the rest of 2020. This will strengthen policymakers’ resolve to prevent the franc from rising much …
The combination of virus-related disruption and a crunch in cash flows for energy firms means that the Norwegian economy is more exposed than most at present. And with oil prices likely to increase gradually at best later this year, the post-COVID …
1st April 2020
The start of a grim run of economic data The eye-watering declines in the manufacturing PMIs for March from Switzerland and the Nordics simply confirm that economic activity has dropped off a cliff following the introduction of containment measures. …
The number of new confirmed Covid-19 cases in Italy has been on a downward trend, raising hopes that the lockdown is beginning to work. In this Update , we put the numbers in context. The latest data from Italy’s Health Ministry show that there have been …
31st March 2020
Euro-zone inflation will soon turn negative The inflation rate in the euro-zone took a leg down in March, largely due to the slump in oil prices. With the economy taking on the verge of an unprecedented nose-dive, we expect headline inflation to drop …
While the SNB clearly favours using FX interventions to weaken the franc at present, persistent concerns about the size of its balance sheet would make it reticent to step in on an ever-greater scale. With no easy choices, we think that, if push came to …
30th March 2020
The business surveys for March point to declines in activity at least as deep as during the global financial crisis. None of them will be perfect guides to GDP though. If anything, the economy seems likely to contract even more sharply than the surveys …
ESI understates the decline in GDP On the face of it, March’s Economic Sentiment Indicator (ESI) is not as downbeat as some of the other surveys. But we think that it understates the drop in activity, and worse is likely to come in April. While the fall …
Chunky month-on-month fall, but much worse is to come While the Swiss KOF Economic Barometer registered its biggest monthly decline in five years in March, the fact that many of the responses to the survey component of the indicator predated the …
This week we got an early sight of just how rapidly the euro-zone economy is collapsing. Meanwhile, the ECB has finally ditched the issuer limits on its asset purchases, freeing itself up to support the sovereign bond market whole-heartedly. But EU …
27th March 2020
Better late than never While it’s been a relatively quiet week on the monetary policy front by recent standards, there is still plenty worth recapping here. The regular weekly data-dump from the SNB early on Monday morning indicated that the Bank made its …
The precipitous fall in oil prices and virus-related plunge in demand is likely to push euro-zone inflation to a record low of -1% in the summer. While the risk of deflation becoming entrenched seems low, we forecast core inflation to average just 0.5% …
Italian output dropping like a stone Italy’s virus containment measures have already caused a huge contraction in activity. We had assumed a peak-to-trough decline in GDP of about 15%, but it could easily fall much further. The business and consumer …
Measuring the economic fallout from the coronavirus is fraught with uncertainty, but the French statistics office estimates that economic activity is currently running a whopping 35% below normal. If so, the downturn in France, and presumably elsewhere, …
26th March 2020
Euro-zone policymakers’ plan to offer precautionary credit lines to some governments is a step in the right direction, but it is too small and not the best tool for the job. It stops well short of fully mutualising the cost of dealing with the virus – …
Unemployment set to rise sharply in Q2 While the fall in the IAB Labour Market Barometer in March points to a modest increase in German unemployment in Q2, the fact that the survey largely pre-dates the ramp-up in containment measures means that further …
Swedish economy set to contract in Q1, and much worse is to come The broad-based drop in Sweden’s Economic Tendency Indicator in March is consistent with the economy contracting by about 0.5-1.0% in Q1. Unfortunately, much worse is set to come in Q2. The …
Business confidence collapses in France The largest-ever fall in French business confidence in March leaves the survey pointing to a severe slump in activity at the end of Q1. But the reality is almost certainly much worse than this. The plunge in …
It now seems likely that euro-zone policymakers will exploit the European Stability Mechanism’s lending capacity to offer financial help to all member states to tackle the hit from the coronavirus. This should be fairly easy to do, but on its own it is …
25th March 2020
Services sector grinding to a halt The Ifo survey gives a similar message to the PMI: the German economy is collapsing, with services bearing the brunt. And the situation is likely to get worse in April. It’s no great surprise that March’s Ifo Business …
We think the unemployment rate in the euro-zone will surge to about 12% by the end of June, giving up seven years’ worth of gains in a matter of months. Much of this may prove temporary if the economy rebounds in the second half of the year, as we assume, …
24th March 2020
The slump in output has only just begun March’s slump in the euro-zone Composite PMI is so sharp that at any other time it would look like a spreadsheet error. But now it is all too believable, and April’s data could be even worse. The decline in the …
Germany’s supplementary budget for nearly 5% of GDP sets an example that other euro-zone countries are likely to follow. However, we suspect that the costs will end up being much higher even than this. Media reports indicate that the German government …
23rd March 2020
The cost of the coronavirus crisis could push Italy’s public debt ratio up to 160% of GDP or more in 2020. This shouldn’t spark a crisis this year because the ECB will stand behind the bond market, but unless the euro-zone agrees more collective support …
Sharp drop in confidence just the start of a long slump The plunge in the EC euro-zone consumer confidence index in March – its largest fall on record – leaves it consistent with household spending plummeting. Given the continued fast spread of the virus, …
The slump in the prices of commodities has hit hard the currencies of the countries whose fortunes depend heavily on them. (See Chart 1.) But if we are right and commodity prices eventually recover as the coronavirus pandemic is brought under control, …
While the ECB’s extra €750bn in bond purchases has reduced financial market stress, governments also need to deliver a large fiscal response without triggering a fresh sovereign debt crisis. In our view, a good way to do so would be to adapt the ESM to …
20th March 2020
Norges Bank opens door to further rate cuts Harold Wilson famously said that a week is a long time in politics, and this week demonstrated that the same can be true for central banks. While policymakers everywhere have not exactly been sitting on their …
It’s been a long week. Rather than recount every twist and turn, we will highlight a few points that seem particularly worth making. First, the decline in GDP looks set to be even bigger than we had assumed. We now think that economy will shrink by about …
While the Swiss National Bank left its key policy rate on hold at -0.75% this morning, it made all the right noises by making its exemptions to the banking sector from negative interest rates even more generous, and pledging to provide liquidity to the …
19th March 2020
First business survey for March points to very sharp declines in output March’s German Ifo survey was very downbeat, but it may even understate the decline in business sentiment. While the ECB’s expansion of QE is a positive step towards containing the …
The ECB announced late yesterday evening a new €750bn programme of bond purchases which is intended to contain borrowing costs for southern economies. This gives it a lot more firepower which should help to contain financial stress in the near term, but …
The combination of the government responses to the coronavirus and the slump in economic activity will cause euro-zone budget balances to deteriorate by at least 10-15% of GDP this year. While this may be manageable for most countries so long as …
18th March 2020
