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Support for the current policy stance Speeches this week by members of the ECB Executive Board, Philip Lane and Isabel Schnabel, were clearly part of a concerted effort to rebuff criticism of the ECB’s ultra-loose monetary policy. Ms Schnabel’s talk was …
14th February 2020
Riksbank will need to ease policy soon It was no surprise that the Riksbank left its repo rate on hold at zero percent this week or that it continued to forecast rates staying there until 2022. However, we think that underlying growth and inflation will …
Germany to continue flirting with recession Given that the German economy stagnated in Q4 last year it will have come as a relief that GDP growth for the euro-zone as a whole was not revised down from +0.1% q/q. We think that Germany will continue to …
Spain’s new government has downgraded its forecasts for economic growth and eased up on the planned pace of budget deficit reduction. But we think that GDP growth this year will be even slower than it expects, due to weakening domestic demand and the …
13th February 2020
The initial financial market reaction in Switzerland and the Nordics to the coronavirus followed the familiar pattern during times of uncertainty: the Swiss franc rose and Swiss bond yields tumbled on the back of safe-haven demand, while the Swedish krona …
Few signs of a rebound after a dreadful Q4 The sharp fall in euro-zone industrial production in December came as no surprise after the very weak national data already published. The timelier surveys suggest that industry will continue to struggle, even if …
12th February 2020
This morning’s decision by the Riksbank to leave its repo rate on hold at zero percent was never in doubt. While policymakers appear happy to stay in wait-and-see mode for the time being, we suspect that they will come under pressure to loosen policy …
Ireland’s general election result does not change our view on the near-term outlook for the economy, which should maintain a decent pace this year and next. But it does raise questions about the longer-term risks to public finances, particularly if Irish …
10th February 2020
Pick-up in Norwegian inflation points to tightening bias at the Norges Bank The unexpected jump in underlying inflation in Norway lends support to our view that the Norges Bank is more likely to hike than to cut interest rates next. Meanwhile, the …
Activity in Norway set to regain pace this year The release of Q4 GDP data from Norway this morning confirmed that the mainland economy lost momentum at the end of last year. The slowdown in quarterly growth, from a downwardly-revised 0.6% in Q3 to 0.2% …
7th February 2020
More disappointing data Data published this week shed a little more light on the euro-zone slowdown in Q4, and the strength of any possible rebound at the start of this year. We won’t get the output or expenditure breakdowns of fourth-quarter GDP until 14 …
Industrial recession has not yet ended The 3.5% slump in industrial production in December flies in the face of the widely-held view that Germany’s manufacturing sector was on the mend at the end of last year. And even before the coronavirus appeared, …
Provided that the coronavirus is brought under control reasonably soon, the consequences for the euro-zone economy should be quite small. Nonetheless, with growth likely to be very sluggish in any case, it could be enough to cause the euro-zone economy to …
6th February 2020
Hopes for a substantial boost to economic growth in the euro-zone from fiscal policy in the next year or two are likely to be disappointed. It seems likely that any fiscal stimulus will be very small. And even if governments agreed on a larger tax and …
The step-up in interventions by Denmark’s Nationalbank (DNB) to strengthen the krone in January puts to bed the idea that the Bank is comfortable with allowing the krone to trade in a more symmetric band. But while the chances of a unilateral rate hike by …
The euro-zone economy ended 2019 on a weak note and the outlook for early 2020 remains gloomy. Euro-zone GDP slowed from 0.3% q/q in Q3 to 0.1% q/q in Q4, with contractions in French and Italian GDP. Although the euro-zone surveys for January point to a …
5th February 2020
Growth to stay weak even if no impact from coronavirus December’s euro-zone retail sales data suggest that household consumption growth slowed sharply in Q4. Meanwhile, the upward revision to January’s euro-zone Composite PMI implies that the coronavirus …
This morning’s decision by the Central Bank of Iceland (CBI) to resume its easing cycle came as no surprise to us following the recent fall in inflation. Given the potential for the coronavirus to exacerbate the deep downturn in the tourism sector, the …
A decade after the start of its first bailout programme, the Greek government has still not reined in the cost of its pension system. And the government’s recent decision to raise pensions suggests that pension costs will increase, rather than fall, in …
3rd February 2020
Mixed messages from the PMIs The mixed set of manufacturing PMIs from January adds to signs that conditions in the Swedish industrial sector have turned the corner but indicate that activity in Switzerland remains stuck in a rut. The jump in the headline …
Weak growth in Q4 not just a one-off The Q4 GDP data published this week were weaker than we or the consensus had anticipated. And the region’s poor performance was not just down to Germany and Italy, with France’s economy contracting. It’s also not clear …
31st January 2020
Manufacturing appears to have passed the worst January’s surge in the Swiss KOF was the most eye-catching data release of the week. While we suspect that the scale of the improvement from December may have been a bit of a rogue reading, the fact that the …
Weak Q4 provides low base for 2020 The Q4 GDP and January consumer prices data published today support our view that euro-zone growth and inflation will be weaker this year than most expect. This underlies our forecast that the ECB will eventually be …
Inflation likely to remain subdued The increase in Germany’s headline HICP inflation rate to 1.6% in January was a little smaller than most had expected and was driven by higher energy inflation. Underlying inflation seems to have fallen in January, and …
30th January 2020
Euro-zone ESI points to still-weak growth at the start of 2020 Despite increasing in January, the euro-zone Economic Sentiment Indicator suggests that the economy is unlikely to have gained much momentum in Q1. Meanwhile, the unemployment rate, which fell …
A positive start to the year The surge in the Swiss KOF Economic Barometer in January may yet prove to be a bit of a rogue reading. Nonetheless, it adds to signs from elsewhere in Europe that conditions for industrial firms have stabilised at the start of …
As long as the number of coronavirus cases remains low in Europe and contained elsewhere in the world, the impact of the virus on euro-zone GDP is likely to be small and temporary. It would need to be much worse than the SARS outbreak in 2003 for economic …
29th January 2020
The Swedish economy appears to have stabilised in recent months, but we doubt that this will mark the start of a sustained pick-up in growth. While the Riksbank will stay in wait-and-see mode for the time being, we think it is only a matter of time before …
Ifo sounds a note of caution The decline in the Ifo Business Climate Index (BCI) for January comes as a bit of a surprise, following good news from other surveys recently, but is consistent with our own view that economic growth will remain very weak in …
27th January 2020
Sluggish growth to continue In its latest World Economic Outlook, the IMF this week nudged down its forecast for euro-zone 2020 GDP growth from 1.3% to 1.2%, reflecting slightly weaker forecasts for Germany and Spain. The IMF is not the only organisation …
24th January 2020
The show must go on If it weren’t for constitutional limits on holding snap elections, Norway would be heading to the polls this year after a rift over policy led the far-right Progress Party (PP) to pull out of the current four-party coalition government …
Slow start to 2020 The unchanged reading for the euro-zone’s Composite PMI in January leaves it still consistent with fairly slow GDP growth. We think that the economy will continue to grow at a meagre pace in 2020. At 50.9, the Composite PMI was a touch …
The ECB left its policy settings unchanged today, made little change to its assessment of the economic outlook and said nothing new about the strategy review. While the markets are pricing in no policy changes this year, we still suspect that the Bank …
23rd January 2020
This morning’s decision by the Norges Bank to leave its key policy rate on hold at 1.50% was widely expected. We suspect that the Bank will leave rates on hold until 2022 though, if anything, our forecast for oil prices to rise suggests that the balance …
The ECB could decide in its strategy review to include owner-occupied housing costs in the measure of inflation which it targets. But we think it is unlikely to do so and, in any case, such a change would not make much difference to measured inflation, …
22nd January 2020
We think growth and inflation will be below consensus in Switzerland and the Nordics this year. Switzerland is most exposed to the prolonged manufacturing recession in Germany and inflation there is likely to be close to zero. Meanwhile, we think the …
Overview – We expect economic growth to remain sluggish this year as external demand picks up only slowly and domestic demand softens. Employment growth is slowing, which will cause household incomes and spending to weaken, and investment intentions have …
21st January 2020
Survey points to continued sluggish GDP growth The latest ECB Bank Lending Survey suggests that while consumer spending growth will maintain a steady pace, investment growth will weaken. It also implies that future TLTRO-III operations will be a little …
Underlying inflation pressures in the euro-zone have been building over the past five years, but so slowly that it’s barely perceptible. And rather than being the start of a new trend, the jump in core inflation at the end of last year is more likely to …
20th January 2020
No easy choices for Swiss policymakers The re-inclusion of Switzerland on the US Treasury’s Monitoring List of potential currency manipulators this week did not come entirely out of the blue. Having only been taken off the list in May 2019, we predicted …
17th January 2020
Phase One deal not a game changer for Europe This week brought a mixed bag of news on global trade, but the big picture is that euro-zone export growth is likely to remain slow this year. The main event was of course the Phase One deal between the US and …
There is no prospect of any change in policy at next week’s meeting… …but we are still forecasting more policy loosening later this year. Details of the scope and timetable of the strategy review may be revealed. At Christine Lagarde’s second meeting as …
16th January 2020
The account of December’s ECB meeting confirmed that the Governing Council is content to leave monetary policy unchanged for some time. But it left the option of further easing on the table – an option that we think it will take up in the second half of …
The decision by the SNB to scrap its currency ceiling five years ago coincided with it slashing interest rates to a record low to reduce the attractiveness of holding Swiss francs. Alas, this ‘deterrence effect’ is not what it used to be: whereas the gap …
Rise in industrial output won’t prevent a poor Q4 The small rise in euro-zone industrial production in November was nowhere near enough to reverse the previous month’s decline, so Q4 is likely to have been yet another weak quarter for the region’s …
15th January 2020
German economy likely to tread water this year News that the German economy expanded by 0.6% last year, down from 1.5% in 2018, suggests that it narrowly avoided another contraction in Q4. Nonetheless, we think that GDP is unlikely to expand significantly …
Inflation set to moderate in 2020 The fact that Swedish inflation was unchanged in December came as a surprise to nobody. But given our view that underlying price pressures will continue to moderate, we are sticking to our non-consensus forecast that …
Five years after the so-called Frankenshock, the SNB is near the end of the road for conventional monetary easing. Accordingly, the Bank may be forced to make another radical policy choice if there is a substantial appreciation in the franc in the coming …
13th January 2020
News that the headline inflation rate in the euro-zone jumped from 1.0% in November to 1.3% in December, and that the core rate (excluding energy, food, alcohol and tobacco) was unchanged, also at 1.3%, has once again raised the possibility that inflation …
10th January 2020
SNB back in the FX market If staff at the SNB had hoped to ease themselves back in gently after the Christmas break, they will have been disappointed. Data released on Monday indicate that the Bank intervened to weaken the franc last week for the first …
