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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 …
25th November 2019
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 …
Norwegian core inflation holds steady While we expect the Norges Bank to leave its key policy interest rate on hold at 1.50% into 2022, the persistence of above-target core inflation in Norway will ensure that it maintains a comparatively hawkish bias …
11th November 2019
The prospect of further political stalemate in Spain, following yesterday’s inconclusive election result, does not alter the short-term economic outlook. But it does mean that there is little chance of a fiscal stimulus, or of making progress in reforming …
Musical chairs at the Riksbank The announcement this morning by the Riksbank that Anna Breman will fill the vacant seat on the Executive Board ends the period of uncertainty since the news of Kerstin af Jochnick’s departure was made public in July. It was …
8th November 2019
Spanish poll unlikely to break deadlock All the signs are that Spain’s fourth election in as many years, which takes place this Sunday, will result in another hung parliament, and that Prime Minister Pedro Sánchez will continue to struggle to cobble …
Manufacturing recession to continue The decline in industrial production in September confirms that German manufacturers are still firmly in a recession. We expect this to continue well into next year, causing the economy as a whole to contract. The 0.6% …
7th November 2019
Although the euro-zone economy grew by more than expected in Q3, helped by solid growth in France and Spain, the overall picture remains fairly gloomy. Euro-zone GDP expanded by only 0.2% q/q, and survey data, such as the Composite PMI, suggest that it …
6th November 2019
Heading towards a weak end to the year September’s euro-zone retail sales data suggest household consumption made a positive contribution to GDP growth in Q3. Meanwhile, the upward revision to October’s euro-zone Composite PMI still leaves it pointing to …
Economic growth in Finland outpaced the euro-zone average before the global financial crisis but has been broadly in line with it in recent years. We think that this trend will continue and that Finnish GDP growth will slow to around 1% in 2020-2021 – a …
5th November 2019
Spain’s fourth general election in as many years looks likely to result in further political stasis, but we doubt that this will have a detrimental effect on the economy. Nevertheless, weaker consumer spending and investment are likely to cause GDP growth …
Deflation rears its head again in Switzerland… Perhaps fittingly in the week of Halloween, data released this morning showed that deflation came back to haunt the SNB in October. (See here .) With the KOF Economic Barometer confirming that the economy …
1st November 2019
It seems fitting that “Count Draghila” ended his term at the ECB on Halloween. And as Christine Lagarde takes over, the euro-zone’s immediate prospects are not nearly as frightening as they were when Mr Draghi took the helm in 2011. In fact, some of the …
Return of deflation to ring alarm bells at the SNB The confirmation this morning that Swiss inflation fell back into negative territory in October for the first time since November 2016 will reignite deflationary fears at the SNB and strengthen its …
The Riksbank appears determined to raise interest rates into an economic slowdown. While higher policy rates may provide some support for the Swedish krona, we still think that it will continue to depreciate. To the surprise of most analysts, ourselves …
Italian stagnation to continue Italy’s economy eked out only a small expansion in Q3, and it looks set to continue performing very poorly over the coming years. We think that it will fail to grow at all in 2020. The 0.1% q/q increase in Italy’s GDP in Q3 …
31st October 2019
Economy to continue slowing The slightly better-than-expected euro-zone Q3 GDP figure does not alter the fact that the region is expanding at only a very modest pace. What’s more, forward-looking indicators, along with the deteriorating global backdrop, …
ESI consistent with anaemic GDP growth The decline in the euro-zone Economic Sentiment Indicator (ESI) in October adds to the evidence that the economy started Q4 on weak footing. The fall in the ESI, from 101.7 in September to a 57-month low of 100.8 in …
30th October 2019
Rebound in sentiment still consistent with weak GDP growth October’s rise in the Swiss KOF Economic Barometer was not enough to offset the previous month’s drop and the series still suggests that activity will remain subdued into 2020. Given the …
As part of its forthcoming review under Christine Lagarde, the ECB is likely to change its inflation target and make its voting system more transparent. Further ahead, it will have bigger issues to resolve, including deciding which tools it could use in a …
29th October 2019
Weak October data bode ill for Q4 This week saw the release of a raft of data which suggested that the euro-zone economy remained very weak at the start of Q4 after a probable stagnation in Q3. Although the Composite PMI edged up in October, this came as …
25th October 2019
Riksbank gunning for zero at all costs As expected, the Norges Bank and the Riksbank both left their policy interest rates on hold on Thursday, at 1.50% and -0.25% respectively. (See here .) Nonetheless, the strong hint by the Riksbank that it will “most …
Ifo adds to evidence that German services sector has lost steam The Ifo Business Climate Index (BCI) held steady at a very low level in October and, in line with the message from other surveys, showed that the German economy remained weak at the start of …
Outgoing President Mario Draghi defended the ECB’s decision last month to introduce a raft of measures and downplayed the Governing Council’s divisions. As euro-zone growth is set to remain weak and any fiscal stimulus is likely to be small, we think that …
24th October 2019
Having left its repo rate on hold at -0.25% this morning, we do not doubt the Riksbank’s clear intent to raise it to zero in December. However, with economic growth set to slow in 2020, and underlying price pressures to stay subdued, we think that …
PMIs suggest that the euro-zone economy is stagnating October’s marginal rise in the euro-zone Composite PMI is fairly disappointing after September’s large fall and reinforces our view that economic growth in the currency union is at a virtual …
While we think that there is still a bit more scope for the Norwegian krone to fall against the euro, we expect the currency to bounce back over the next couple of years, as the country’s terms of trade improve. For all the talk about krone weakness, its …
23rd October 2019
Riksbank and Norges Bank set to leave policy on hold this week. SNB to push the boundaries of policy easing in early 2020. Central bank of Iceland to continue its easing cycle over the coming months. We expect the Riksbank and the Norges Bank to leave …
22nd October 2019
Survey consistent with continued sluggish GDP growth The latest ECB Bank Lending Survey shows that firms’ demand for credit is softening, adding to evidence that the euro-zone economy will remain sluggish and in need of further policy support. In Q3, …
The success of environmentalist parties in yesterday’s Federal Elections in Switzerland echoes similar gains elsewhere in Europe in recent months. But given Switzerland’s consensus-based political system, the result is unlikely to cause any major change …
21st October 2019
Our best guess is that vehicle production in the euro-zone will stabilise at around its current level over the next year. If so, the sector would subtract 0.2% from GDP this year, but neither add to nor subtract from GDP in 2020. Regardless, the euro-zone …
Statistics Sweden sound a health warning The news that the Swedish unemployment (UP) rate was unchanged at its highest level since June 2015 in September (7.4%) initially caused the krona to fall against the euro on Thursday morning. However, the currency …
18th October 2019
Draft budgets not quite what they appear At first glance the budget proposals submitted to the European Commission (EC) this week might raise hopes for a big fiscal stimulus next year. But we think they should be taken with a pinch of salt. Admittedly, …
Clashes on Governing Council will cast a shadow over Draghi’s farewell party. No chance of policy action next week, but we think policy will be loosened next year. Forthcoming review to change inflation target and possibly communication strategy. Mario …
17th October 2019
