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We estimate that the direct and indirect effects of the slump in vehicle production account for around half of the downturn in German industrial production since the beginning of last year. A sustained recovery will not take place until the sector is back …
1st October 2019
From bad to worse The release of a grim set of manufacturing PMIs for September this morning lends further support to our views that policymakers in Sweden and Switzerland will end up cutting interest rates deeper into negative territory, and that the …
Suggestions that the recent rise in interbank rates was caused by the ECB’s new tiered interest rate system are wide of the mark. Instead, the increase reflects investors’ re-evaluation of the outlook for policy rates. They now anticipate a single 10 …
30th September 2019
The latest business surveys from Switzerland indicate that the woes in Germany are posing an increasing drag on activity. We have therefore revised our forecasts for Swiss GDP growth down to just 0.5% this year and next, which puts us well below the …
Labour market cooling Euro-zone employment growth looks set to slow over the rest of this year, and remain subdued in 2020. So we expect wage growth to weaken too, eventually prompting the ECB to loosen policy again. The decline in the euro-zone’s …
The giveaways to households and firms announced by French finance minister Bruno Le Maire yesterday do not alter the fact that there will be a tightening in France’s fiscal stance in 2020. Indeed, the French government has not got the will (nor the scope …
27th September 2019
No signs of green shoots in the Swedish economy Another week, and yet more evidence that the Swedish economy is stuck in first gear. The Economic Tendency Indicator fell for the fifth month in a row in September (data released on Thursday), driven by a …
ECB divisions increasingly in the open The resignation of Sabine Lautenschläger this week, and continued media coverage of September’s Governing Council decisions, have once more put the spotlight on divisions within the ECB. We think these may get worse …
Sentiment deteriorating again The renewed fall in the euro-zone Economic Sentiment Indicator (ESI) adds to the evidence that the region’s economy slowed further in Q3. For now, the weakness is concentrated in the manufacturing sector, and led by Germany …
Assessing investors’ expectations about the future path of policy interest rates in Norway is not as straightforward as it is in other countries, not least neighbouring Sweden. In this Update we answer ten key questions to provide a primer on how to gauge …
Most of the recent outperformance of Switzerland’s manufacturing sector relative to Germany’s reflects strong growth in pharmaceuticals. But this has masked struggles in more Germany-facing sectors. The Swiss manufacturing sector has outperformed its …
26th September 2019
Given that the SNB’s policy rate is already at -0.75%, fears of hitting the so-called ‘reversal rate’ are likely to make it unwilling to cut rates much further. With the ECB once again in easing mode, we put the odds of the SNB having to reinstate a …
25th September 2019
We are cutting our forecast for euro-zone GDP growth in 2020 and expect inflation to stay close to 1%. Moreover, we think the ECB will revise its inflation target in the coming months, then cut its deposit rate to -0.8% and further step up QE next year, …
24th September 2019
Ifo still consistent with German recession The small increase in the headline Ifo Business Climate Index for September leaves it at a very low level and does not alter the fact that Germany seems to have entered recession in Q3. Moreover, the expectations …
PMIs suggest that growth has slowed in Q3 September’s fall in the euro-zone Composite PMI supports our view that economic growth in the currency union has slowed in Q3. And with no sign that core inflation is rising, and the ECB’s latest action unlikely …
23rd September 2019
Lots of chatter from the Riksbank If a week is a long time in politics, two weeks is an eternity in Swedish economics! The clear deterioration in the economic data since the September policy meeting just a couple of weeks ago – not least the further rise …
20th September 2019
Dutch policymakers heed ECB’s call for action … The ECB’s appeal last week for fiscal policy to become the “main instrument” supporting the euro-zone economy appears not to have fallen entirely on deaf ears. The Dutch government this week announced a …
The changes to the SNB’s tiering system, announced yesterday, are even more generous to domestic banks than they initially appear, and will help to ‘sugar the pill’ ahead of a probable rate cut. The main point of interest at yesterday’s SNB meeting was a …
The surprisingly low uptake of the ECB’s TLTROs today was probably a one-off, and uptake in December is likely to be stronger. But even if it is, we doubt that this will provide much of a boost to the economy. At just €3.4bn, uptake in the first TLTRO-III …
19th September 2019
This morning’s decision by the Norges Bank to raise its key policy rate by 25bps, to 1.50%, was is in stark contrast to the rate cuts delivered by the Fed and the ECB over the past week. Nonetheless, given the dovish shift in the Bank’s tone, we agree …
Given that the Swiss National Bank last changed its policy stance in January 2015, this morning’s decision to leave its policy rate on hold at -0.75% came as no surprise to us. But its tweak to make its tiering system more generous to banks lends further …
While far from certain, there is a growing chance that the German government announces a fiscal stimulus in the coming weeks or months. However, even if it does, we think any boost to demand would be too small to make much difference to short-term growth …
We expect French industrial production growth to slow in the coming year or so. But it should continue to outperform German industry thanks to its focus on less cyclical products such as food, energy and aerospace, and on euro-zone rather than global …
18th September 2019
The “citizenship income” payment will boost Italy’s GDP growth next year by only about 0.1%, in part because take-up has been lower than predicted. While this also lowers the cost of the policy, the government will need to find much bigger savings to …
The sharp rise in Swedish unemployment in August serves as further evidence that the Riksbank is unlikely to be able to tighten policy later this year, as it forecasts. The increase in Sweden’s seasonally-adjusted unemployment rate in August, from 7.1% in …
17th September 2019
The euro-zone’s manufacturing downturn has dragged services growth lower this year. And with both employment and wage growth weakening, services will probably slow a little further next year. While the euro-zone slowdown has been concentrated in the …
The ebbs and flows in investor risk appetite in recent months have resulted in a rollercoaster ride for the Swiss government bond market. The run-up in the price of Swiss 50-year government bonds between early-July and mid-August – which reflected a fall …
13th September 2019
Over to you, SNB! The recent pick-up in investor risk appetite has given the SNB a little breathing space ahead of its policy meeting next Thursday. Weekly data indicate that the Bank paused its FX interventions to weaken the franc at the end of August …
ECB has more tools, but they’re blunt The ECB’s new forecasts imply that it is not very confident about hitting its inflation target. Indeed, its new projections show headline and core inflation at just 1.5% in 2021, which President Draghi described as …
Labour cost growth still likely to slow in coming quarters The increase in nominal hourly labour cost growth to 2.7% in Q2 masks significant differences between countries and is partly due to a reduction in hours worked, rather than higher wages. We …
Having mirrored the ECB’s 10bp interest rate cut this afternoon, we now expect the Danish Nationalbank to reduce its Certificates of Deposit rate again by the end of the year. Meanwhile, although the SNB is likely to stick with FX interventions for a …
12th September 2019
With today’s policy decision, Mario Draghi appears to have locked the ECB into QE for several years beyond his time in office. While the move was initially welcomed by financial markets, we doubt that it will be enough to re-invigorate the euro-zone …
A disappointing start to Q3 July’s small fall in euro-zone industrial production marked a soft start to Q3 and the surveys suggest that the downturn will continue, encouraging the ECB that it is right to loosen policy later today. The 0.4% m/m fall in …
Weak inflation further undermines the Riksbank’s hawkish stance The weakness of Swedish inflation in August pours even more cold water over the Riksbank’s forecasts for an interest rate hike over the next six months. We are sticking to our view that …
10th September 2019
Euro-zone underperforming ECB forecasts The latest data are consistent with our view that the euro-zone economy will remain sluggish. National accounts data published earlier today confirmed that the currency union’s GDP grew by just 0.2% in Q2. (See here …
6th September 2019
The Riksbank is in a group of one It was no surprise to see the Riksbank present substantial downward revisions to the back-end of its forecast for the repo rate at its policy meeting on Thursday. However, the fact that the Bank stuck to its forecast of a …
Growth likely to remain subdued The third estimate of euro-zone GDP in Q2 confirmed that the economy slowed, with both consumption and net exports contributing to this deceleration. With household income set to lose pace and global economic growth remain …
In the face of the downturn in manufacturing, the services sector is still holding up well. Indeed, the business activity index of the services PMI survey suggests that output in the sector is growing by about 1.5% y/y. (See Chart 1.) The strength of the …
5th September 2019
We think the ECB will cut its deposit rate by 10bp and introduce tiering next week. More QE is probably on the way too, but may not be agreed until October. The Bank is also likely to further strengthen its forward guidance. After policymakers spelt out …
The decision by the Riksbank to leave its repo rate on hold at 0.25% this morning was never really in doubt. However, its hawkish tone and cautious approach to cutting its forecasts for the repo rate poses serious risks to its credibility. Given that all …
Activity set to slow further in the second half of the year The fact that the Swiss economy grew slightly faster than we had expected in Q2 is of limited solace given the sizeable downward revisions to the back data. The risks to our GDP forecast this …
The fact that investors are now pricing in looser monetary policy in Sweden highlights the extent to which the Riksbank has fallen behind the curve. Anything less than a substantial dovish shift in the Bank’s tone and forecasts tomorrow would be a big …
4th September 2019
The formation of a coalition between the Five Star Movement and the Democratic Party reduces the risk of a renewed clash with the EU over fiscal policy, but it does not dramatically alter the economic outlook. We think that the economy will continue to …
Under any plausible growth scenario Greece’s credit rating is likely to remain well below investment grade over the coming years. Among other things, this means that Greek bonds will not be included in any fresh round of ECB QE, even if, as we suspect, it …
PMIs suggest Italy’s troubles rumbling on The small upward revision to August’s euro-zone PMI leaves it still pointing to slow GDP growth at the start of H2. And the fall in retail sales in July suggests that consumption started Q3 on weak footing. The …
Persistent subdued inflation keeps the pressure on the SNB This morning’s release of Swiss inflation data for August confirmed that price pressures there remain almost entirely absent. It’s still a question of when, rather than whether, the SNB eases …
3rd September 2019
August PMIs are no game changers The manufacturing PMIs from August indicate that the Swiss industrial sector is still feeling the pinch from the deep downturn in its German counterpart and the stronger franc, and add to the evidence that the Swedish …
2nd September 2019
Dire Swedish data run goes On and On and On The fourth consecutive fall in the Swedish Economic Tendency Indicator continued the recent run of poor data releases. The indicator fell in August to its lowest level since June 2013 and the broad-based …
30th August 2019
Bond market rally complicates life for ECB More policy loosening is on the way in the euro-zone, but it will not be supported by all of the ECB Governing Council. After holding his tongue for several months, Bundesbank boss, Jens Weidmann, said this week …
Unchanged inflation supports case for more ECB loosening With headline and core inflation unchanged in August, at 1.0% and 0.9% respectively, and unemployment also unchanged at 7.5% in July, the scene is set for the ECB to loosen policy further. After …
