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French President Emmanuel Macron’s emphasis on overhauling France’s ailing labour market is long overdue. But while there are signs that the changes are starting to take effect, the labour market improvement since 2015 is mostly thanks to a cyclical …
17th December 2019
What a difference a few months make; from being the worst performing G10 currency by some margin between the start of the year and late October, the Swedish krona has risen by about 3% against the euro since the Riksbank hinted that it would “most …
16th December 2019
Poor end to a disappointing year The flash PMIs for December will disappoint those looking forward to a happier New Year. Indeed, they point to euro-zone GDP being almost flat in Q4 and a continued industrial recession. Looking beyond the holiday season, …
Lagarde not just Draghi 2.0 In her opening press conference, Christine Lagarde seemed to be just as dovish as her predecessor. Her claim to be an owl, rather than a dove or a hawk, was more of a political gesture than view on policy. And her suggestion …
13th December 2019
Beware of the survey! The Norwegian krone barely moved after inflation data for November were released early on Tuesday morning. However, the currency plunged just two hours later after the latest quarterly Regional Network Survey indicated that economic …
While Ms Lagarde’s assessment of the outlook in today’s press conference was slightly less gloomy than Mr Draghi’s in October, this does not change our view that the ECB will loosen policy again during 2020. After all, policy would need to be eased even …
12th December 2019
Today’s decision by the Swiss National Bank to leave its policy stance unchanged came as a surprise to nobody. Five years on since the Bank first cut interest rates into negative territory, there is every chance that it will keep them below zero over the …
Industrial production hasn’t bottomed out yet October’s sharp fall in euro-zone industrial production adds to the evidence that the sector’s troubles are far from over. We expect the sector to remain in recession at the start of next year. The 0.5% m/m …
Pick-up in inflation makes Riksbank hike next week a done deal The pick-up in Swedish inflation in November means that a rate hike by the Riksbank next week is all but guaranteed. But with surveys continuing to show that the economy is struggling, and …
11th December 2019
After cutting rates by 150bps since April, the Central Bank of Iceland kept its deposit rate at its current record low of 3.00% today. We suspect that in the absence of a sharp and sustained fall in inflation expectations, the Bank will keep rates …
Hopes that the euro-zone is turning a corner look premature. The latest activity data have been disappointing, with retail sales falling in October and national data pointing to another decline in industrial output. Business surveys paint a bleak picture …
10th December 2019
Risks skewed towards tighter policy in Norway While we expect the Norges Bank to leave its key policy interest rate on hold at 1.50% for the foreseeable future, the persistence of core price pressures means that the balance of risks is skewed towards …
There is little evidence that negative interest rates have succeeded in boosting economic growth or inflation expectations. But equally, they do not seem to have done much harm either – many of the criticisms levelled at them have been wide of the mark. …
9th December 2019
France’s public sector strikes will probably dampen economic activity this quarter, but experience from previous, similar walkouts suggests that the hit to GDP will be small. Moreover, while protests have occasionally caused governments to abandon planned …
6th December 2019
No sign of green shoots in Swedish industry Another week, and yet more data from Sweden that call into question the wisdom of the Riksbank’s probable rate hike later this month. As in Germany, conditions in the industrial sector are going from bad to …
Still no light at the end of the tunnel If Christine Lagarde had been hoping that the economy would perk up this year, taking the heat out of the disputes between hawks and doves on the Governing Council, this week’s data will have been a disappointment. …
Manufacturing recession takes a turn for the worse The sharp drop in production in October was driven by a slump in auto production and suggests that, far from bottoming out, Germany’s industrial contraction may even be getting worse. The economy narrowly …
Three months after the September policy package, no change is likely next week. The spotlight on Thursday will be on Ms Lagarde herself, and her policy review. Further ahead, we still expect more ECB easing, prompted by low inflation. With little chance …
5th December 2019
House price inflation in Spain is now slowing but we do not envisage a slump in property prices that would derail GDP growth. After all, economic and financial conditions are supportive and there is little evidence that valuations are particularly …
Growth likely to remain subdued The third estimate of euro-zone GDP in Q3 confirmed that the economy remained sluggish, with net trade continuing to weigh on growth. And we doubt that things will get any better in the coming quarters. As expected, …
France and Spain still outperforming November’s final euro-zone PMI is consistent with very anaemic GDP growth in Q4 and the national indices point to continued weakness in both Germany and Italy, while France and Spain remain relative bright spots. The …
4th December 2019
While the resignation of the Finnish Prime Minister today is unlikely to lead to a collapse in government, elections may well take place before 2023, when they are due. If so, the nationalist Finns Party could end up in power which could lead to fiscal …
3rd December 2019
Our economic forecasts for Italy are based on the assumption that the coalition government holds together, at least for the next two years. But in our view, the economic impact would be small if it fell apart. Bond yields would probably rise, but not as …
Stuck in a rut The falls in the Swiss and Swedish manufacturing PMIs in November dash any hopes that the manufacturing sectors have gathered momentum in Q4. With the manufacturing recession in Germany set to rumble on, industrial output in Switzerland and …
2nd December 2019
Below, but close to, 2 degrees centigrade Reports that Christine Lagarde wants climate change to feature in the ECB’s forthcoming review of its monetary policy strategy suggest that the Bank will be even more political under her leadership than it was …
29th November 2019
Setting the stage for a December repo rate hike The pick-up in GDP growth in Sweden in Q3 (see here ) was much stronger than the small contraction that we had pencilled in, and was at odds with the raft of weak survey data that we had put emphasis on. It …
Core inflation unlikely to keep rising November’s jump in inflation is unlikely to be the beginning of a sustained upward trend in price pressures. With employment growth slowing and slack in the labour market increasing, wage growth seems likely to level …
Stronger growth in Sweden not likely to last The pick-up in Swedish GDP growth in Q3 means that a rate hike by the Riksbank at its next meeting is now pretty much a done deal. But if, as we expect, the economy slows next year, we think the Bank will have …
Sentiment still pointing to weak GDP growth Despite November’s small increase in the euro-zone Economic Sentiment Indicator (ESI), the index suggests that the economy is unlikely to have gained pace in Q4. The slight rise in the ESI, from 100.8 in October …
28th November 2019
Positive surprise but economy is not out of the woods, yet The stronger-than-expected rise in quarterly Swiss GDP growth in Q3 was a bit of a relief and poses upside risks to our near-term forecast. But the outcome was skewed by weather-related effects …
In its first five months in office Greece’s new government has implemented a range of tax cuts that should support the economy and has made a start with some structural reforms. But we are sceptical that it will execute the deeper reforms needed to raise …
26th November 2019
Germany is not out of the woods yet November’s Ifo Business Climate Index suggests that Q3’s small increase in German GDP was not the beginning of a recovery. We think that the economy will contract in the coming quarters. On the face of it, the increase …
25th November 2019
We doubt that the global pick-up in government bond yields will resume anytime soon, so domestic monetary policy is likely to be the key driver of bonds in Switzerland and the Nordics. With that in mind, while we think that bond yields in Norway will not …
Big pharma, big statistical distortions Perhaps the most eye-catching data release of the week was on Thursday when the Federal Statistical Office in Switzerland reported that Swiss industrial production jumped by 8% in Q3 from the same period a year ago. …
22nd November 2019
What would St Francis do? “Start by doing what’s necessary; then do what’s possible; and suddenly you are doing the impossible”. This quote from St Francis of Assisi is how Christine Lagarde ended her first speech as ECB president on Friday morning. We’re …
Economy slowing in Q4 The small decline in the euro-zone Composite PMI for November confirms that the economy is still struggling. One silver lining is that the pace at which German industrial output is contracting appears to be slowing. But the weakness …
Calls for much looser fiscal policy in the euro-zone are falling on deaf ears. While the Netherlands and Germany have set out fiscal stimuli for 2020, each has past form for running tighter policy than planned. And any loosening in these countries is …
21st November 2019
Base effects mask underlying weakness The jump in annual Swiss industrial production growth in Q3 was skewed by base effects and masks weakness in those sectors most exposed to Germany. As Germany’s industrial recession looks set to drag on, we expect …
While the Riksbank’s plans for an official digital currency are still in the early stages, we think it is more likely than not that it will launch the e-krona by the mid-2020s. Moreover, we suspect that it will opt for a design which has the potential to …
20th November 2019
In our view, claims that the ECB’s negative deposit rate is weighing heavily on bank lending in the euro-zone are wide of the mark. In fact, we suspect that policymakers will cut the deposit rate even further below zero next year without having major …
19th November 2019
The euro-zone’s services sector has held up relatively well so far this year. However, we expect spill-overs from the industrial recession and slowing employment growth to take a toll in the coming months. The latest business surveys point to a sharp …
18th November 2019
Inflation in Switzerland fell below zero for the first time in nearly three years in October and business surveys suggest that it will remain in negative territory until at least early 2020. (See Chart 1.) As it happens, we suspect that a combination of …
15th November 2019
Views from the ground in Stockholm One of the issues that came up a lot in our client meetings in Stockholm this week (see here ) was the appropriate mix between fiscal and monetary policy in Sweden. In a speech on Wednesday, Martin Flodén added to the …
Q3’s 0.2% quarterly expansion in the euro-zone economy, which was confirmed this week in Eurostat’s second estimate of GDP , was almost certainly driven entirely by domestic demand. We will not have a Q3 GDP breakdown for the euro-zone by either …
We have just returned from two days of client meetings in Stockholm from which the key takeaway is that we are not alone in being puzzled by the Riksbank’s stance. Policymakers seem determined to raise the repo rate in December, but we remain confident …
14th November 2019
Germany avoids a technical recession, for now While the second estimate of Q3 GDP for the euro-zone was unchanged, and Germany narrowly avoided a technical recession, we think that the cyclical downturn in the region still has further to run. Our forecast …
Industrial recession to drag on Although euro-zone industrial production edged up in September, the sector still fared very poorly in Q3 overall and the business surveys suggest that the region’s industrial recession has further to run. The 0.1% m/m rise …
13th November 2019
Riksbank to tighten policy despite low inflation Despite October’s increase in CPIF inflation, underlying inflation in Sweden remains below target and serves as proof that the economy is not ready for the Riksbank’s planned rate hike in December. While …
The latest activity and confidence indicators point to continued near-stagnation in the Italian economy. While household consumption is likely to keep growing, prospects for investment and exports are bleak. Italy’s GDP has increased by 0.1% q/q in each …
12th November 2019
Norwegian economy to stay in a class of its own This morning’s release of Q3 GDP data from Norway confirms that the economy is faring much better than its Nordic peers. The economy looks set to lose some pace in the coming months but we do not think it …
