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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 …
19th March 2020
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
The economic slump in the euro-zone increasingly threatens to trigger a wider financial sector crisis. In order to head off the risks to the banking sector, the ECB will need to provide unequivocal support for sovereign bonds, allowing governments to …
With the euro-zone economy set to contract by 10-15% q/q in Q2 as numerous businesses come to a standstill, governments will have no choice but to provide support to businesses and households on an unprecedented scale. However, this would be far more …
17th March 2020
Investor sentiment points to big falls in GDP The sharp drops in the ZEW measures of German and euro-zone investor sentiment in March came as no surprise, and point to sharp falls in GDP. Things are likely to get much worse in Q2, when we expect euro-zone …
Last week’s ECB decision gave it more ammunition to combat the fallout from the coronavirus, but it will not be enough. We now think the Bank will soon make an explicit commitment to keep sovereign bond yields low for all governments at least for the …
16th March 2020
Norges Bank and Riksbank are ruling nothing out After a bruising week for equities and the Norwegian krone, it is half-encouraging that the Nordic authorities are all singing off the same hymn sheet. Nonetheless, policymakers will not be able to prevent …
13th March 2020
The situation in euro-zone financial markets went from awful to absolutely disastrous this week as the coronavirus spread across the region. Monday’s rout was followed by a collapse in global equity prices on Thursday. European stocks had their worst …
While the widespread re-introduction of border controls in Europe does not seem likely at present, it is possible that more governments turn to them as part of a wider policy response against the coronavirus. Any negative impact on cross-border workers …
The measures unveiled by the ECB today were as substantial as expected. But, along with Ms Lagarde’s comments, they underlined that the ECB has little firepower left, that there has been no coordinated fiscal response, and that the Bank is reluctant to …
12th March 2020
The spread of the coronavirus, and the related real-time economic and market disruption, means that a large swathe of hard and survey data released during the past month is old news. Consequently, this publication will now focus on fewer, timely and …
The coronavirus poses a significant risk to euro-zone banks. Based on our current forecast for a 1% or so decline in GDP this year, loan losses would be manageable. But a much deeper recession may well force banks to reduce their lending and governments …
11th March 2020
Amid a raft of rate cuts by other G10 central banks, and the recent plunge in oil prices, we have pencilled in a 50bp rate cut at the Norges Bank’s meeting next Thursday. We expect policymakers to follow up with a further 50bp of cuts in Q2, and the krone …
As it stands, we think that the direct impact of the coronavirus on the Swiss insurance industry is likely to be manageable. However, the indirect impact from lower-for-longer bond yields will only add to the structural headwinds that have affected …
10th March 2020
The spread of the coronavirus to Europe means that it is household spending and tourism that are likely to be hardest hit in the coming months, rather supply chains and exports, which initially appeared most vulnerable. This means that southern euro-zone …
In the current circumstances, any economic forecasts come with a huge pinch of salt. But we now think the euro-zone economy will experience a deep slump in Q2 this year, causing GDP to decline by more than 1% in 2020 overall. Provided that the virus is …
As a share of the population, Italy already has double the number of coronavirus cases as China, and the entire country is now in quarantine. (See Chart 1.) We think that this is likely to cause its economy to contract sharply in Q1 and Q2, and now …
Against a backdrop of rising pressure on major central banks to loosen policy in response to coronavirus, we now forecast the Riksbank to cut its repo rate back into negative territory at its 28 th April decision, if not before. However, as in other …
9th March 2020
Output set to slump again The rise in German industrial production in January provides no relief for policymakers, who should now be braced for a new slump as Covid-19 spreads throughout Europe. Industrial output is likely to fall more steeply in Q1 and …
Sell-off concentrating minds The market slump is galvanising policymakers into action. At the time of writing, the Euro Stoxx 50 was 15% below its mid-February peak and the ten-year Bund yield close to its all-time low. (See Chart 1.) This, of course, …
6th March 2020
Pressure building on the SNB to cut rates While the 0.2% increase in Swiss GDP in Q4 2019 was in line with our forecast, attention has understandably moved on to the economic impact of the coronavirus and the coming policy response. There is little in the …
The response by policymakers, households and firms to the spread of the coronavirus looks set to take a heavy toll on Italy’s economy. We suspect that GDP will contract in both Q1 and Q2, and that over the year as a whole it will shrink by about 0.5%. It …
5th March 2020
Other than a lengthening of supplier delivery times in February, there is little evidence that the shutdown in the Chinese economy has had much impact on the euro-zone economy so far. Indeed, business surveys generally point to a slight pick-up in …
4th March 2020
Coronavirus hit to consumption will weigh on growth The increase in euro-zone retail sales data in January suggests that household consumption picked up at the beginning of the year, but we suspect that spending will drop in Q2 as the Covid-19 virus …
Coronavirus to exacerbate downward pressure on Swiss inflation The return of deflation to Switzerland in February will only strengthen the policymakers’ resolve to prevent the franc from rising much further. Following yesterday’s emergency rate cut by the …
The Bank will cut its forecasts for GDP growth and inflation in light of the virus. On balance, we think it will reduce its deposit rate by 10bp next week. We also expect the Bank to tweak the terms of its longer-term financing operations. The ECB will …
3rd March 2020
Coronavirus to dampen inflation pressures further February’s fall in inflation reflected the decline in energy prices as a result of the coronavirus outbreak. But if the virus starts to sap domestic demand, then core inflation may decline slightly in the …
The stronger-than-expected increase in Swiss GDP growth in Q4 provides a higher base for annual growth rates at the start of this year than we had previously assumed. Nonetheless, following the surge in coronavirus cases, we now expect the economy to …
In light of the accelerating spread of the coronavirus – and the economic disruption that is likely to follow – we are pulling down our GDP growth forecasts for Q1 and Q2 of this year. Growth is likely to rebound over the second half of the year, but most …
2nd March 2020
Following the surge in Covid-19 cases over the past week, we are cutting our forecast for euro-zone economic growth to 0.5% for the year, from 0.7% previously, due to a sharp drop in household spending in Q2. For now, we are assuming that the economy …
Broad-based improvement in February, but the story has moved on The increases in the manufacturing PMIs in February in Switzerland and the Nordics suggest that conditions in the industrial sector were improving before the surge in coronavirus cases in …
Spread of virus a potential game-changer The ten-fold increase in the number of confirmed coronavirus cases in Europe over the past week has increased the risk of a recession. So long as the virus was confined to China, the main threat to Europe was from …
28th February 2020
Covid-19 dominates proceedings in Switzerland The geographic proximity of Switzerland to Italy has understandably raised fears about the potential spread of the coronavirus. With the number of confirmed cases in Switzerland up to 15 at the time of …
Swedish economy will struggle to regain momentum The Swedish economy ended last year on the back foot, and a combination of the rising threat from the coronavirus, weak growth in the neighbouring euro-zone, and persistently below-target inflation lend …
The possibility of the Olympics and/or the European Football Championships being cancelled as a result of the coronavirus poses downside risks to headline Swiss GDP growth this year. Nonetheless, this will not trouble the SNB, whose focus will remain on …
27th February 2020
Little sign of coronavirus impact, but euro-zone still on course for weak Q1 The rise in the euro-zone Economic Sentiment Indicator (ESI) for February adds to the evidence that the coronavirus has had little impact on the economy so far. But the survey …
The outsized importance of cross-border commuters to the Swiss economy means that it is particularly vulnerable to any disruption to flows of people within Europe as a result of the coronavirus. Partly because of this, the chances of a rate cut by the SNB …
26th February 2020
Portugal’s economy has been a relative bright spot in the euro-zone in recent years and we think it will fare better than average again this year. Nonetheless, quarterly GDP growth looks set to slow from Q4’s stellar pace as investment eases and slower …
25th February 2020
Falling business investment will continue to weigh on economy After flat-lining in Q4 last year, we suspect that the German economy will not grow in the first half of this year either, even if the effects of the coronavirus are contained. With no change …
So far, the knock-on effects from the downturn in China on the euro-zone economy have been negligible. However, the jump in confirmed cases in Italy this weekend adds another channel through which the virus could hurt the economy. It also makes another …
24th February 2020
Small rise leaves Ifo at low level The small increase in the Ifo Business Climate Index in February will be a relief for those braced for a big hit from the coronavirus. However, the index is still below its level in December and remains consistent with …
Contrary to what we and the consensus had expected, the euro-zone Composite PMI edged up in February, with both the services and the manufacturing output components increasing. The rise in the PMI echoed the message from other surveys this week, which …
21st February 2020
Policymakers agree to disagree Having drawn criticism for its optimistic projections for interest rates in the past, the Riksbank is keen to show that it means business with its forecast to leave the repo rate unchanged over the coming years. However, …
Limited impact from coronavirus but growth still anaemic The unexpected rise in the euro-zone Composite PMI in February will have assuaged fears that the region’s economy has been adversely affected by supply-chain disruption as a result of the …
The account of the ECB’s January meeting suggests that the ECB was becoming a little more positive on the economic outlook. But weak data and the spread of the coronavirus since then will have surely added to the downside risks. We are sticking to our …
20th February 2020
Industry ends 2019 on the back foot While pharmaceuticals output supported Swiss manufacturing again in Q4, conditions in the rest of the sector weakened at the end of last year. With the German industrial recession likely to drag on, and the coronavirus …
Weaker-than expected inflation to test the Riksbank’s resolve The sharper-than-expected fall in Swedish inflation in January may test the Riksbank’s resolve to keep policy unchanged. With subdued GDP growth likely to weigh on underlying inflation this …
19th February 2020
While we suspect that the SNB has intervened to slow the rise of the franc in recent weeks, it has not prevented it from reaching a multi-year high against the euro. At the margin, an increased tolerance for a stronger currency argues against the Bank …
18th February 2020
After Italy’s economy shrank at the end of last year, it looks set to continue to struggle in 2020. In fact, there is a clear risk that it falls back into recession for the fourth time since 2008. The 0.3% q/q contraction in Italy’s economy in the final …
The recent election result in Ireland has made the prospect of reunification slightly less remote. In this Update , we answer four political questions and four economic questions about what it might mean. Although Sinn Féin won the highest share of the …
17th February 2020
