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While Swedish inflation surprised on the upside in May, we expect it to fall back as economic growth slows over the coming months. As a result, we are sticking to our dovish view that the Riksbank will leave its repo rate unchanged until at least 2022. … …
14th June 2019
Some commentators have argued that technicalities around estimates of euro-zone countries’ output gaps have led to excessively-tight fiscal policy. While we have some sympathy with this view, in Italy’s case it misses the bigger picture that fiscal …
13th June 2019
April’s decline in euro-zone industrial production, together with timelier survey data, suggests that the sector performed poorly in Q2. … Euro-zone Industrial Production …
As expected, Swiss policymakers maintained their expansionary monetary policy at their June policy meeting. But the recent shift to a looser bias in the US and the euro-zone only strengthens our view that Swiss rates will be cut further into negative …
Q1 GDP data for Switzerland and the Nordic economies were a mixed big and proved the adage that the devil is in the detail. Switzerland and Sweden both posted the same headline growth rate (0.6% q/q). But while the breakdown of the former’s growth was …
12th June 2019
Mr Draghi’s comments at the ECB’s press conference last week suggest that the Governing Council is gearing up to loosen monetary policy a bit earlier than we had anticipated. We now think it will shave the deposit rate from -0.4% to -0.5% by year-end, and …
The Italian government issuing so-called “mini-BOTs” to pay public sector arrears would fuel speculation about Italy’s future in the euro-zone. It seems unlikely that this will happen over the next year or so. But there is a risk that Italian policymakers …
11th June 2019
The weaker-than-expected inflation data for May from Norway are unlikely to prevent the Norges Bank from hiking interest rates again at its policy meeting next week. But they increase the chance that next week’s hike will mark the end of the current …
Political news dominated this week, with the left-wing ‘red-bloc’ winning a majority in Denmark’s election and the successful formation of a five-party coalition in Finland – the Rinne Cabinet. On the economic front, manufacturing PMI data for May showed …
7th June 2019
President Draghi’s comments at this week’s press conference were consistent with our view that the ECB will eventually re-start its QE programme. Meanwhile, Italy looks set for another collision with the EU, which we expect to push bond yields higher. … …
There is little that Italy’s government can do to prevent its debt ratio from rising. For a number of reasons, not least of which is its membership of the euro-zone, the three paths to debt reduction – faster GDP growth, fiscal austerity, and higher …
April’s fall in industrial production adds to the evidence that Germany has not shaken off the problems which hit it nearly a year ago, and suggests that the economy slowed sharply in Q2. … German Industrial Production …
The measures announced by the ECB today were underwhelming, but policymakers have been considering how to respond to any further economic weakness. All the signs are that they would favour more QE. This is consistent with our view that they will re-launch …
6th June 2019
The third estimate of euro-zone GDP in Q1 confirmed that the economy grew at a fairly strong pace, driven mainly by household consumption. But we think that growth will slow in Q2, and with core inflation likely to remain subdued, we expect the ECB to …
Financial market measures of inflation expectations have fallen to levels at which the ECB has loosened policy in the past. Indeed, the ECB’s favoured measure of expectations – the five-year/five-year inflation swap rate – is at its lowest level since …
5th June 2019
Italy is on another collision course with the EU that looks set to push bond yields up and weigh on economic activity. … Italy’s “fiscal shock” set to cause more …
The upward revision to May’s euro-zone PMI leaves it still pointing to GDP growth slowing in Q2. The fall in retail sales in April suggests this is partly due to subdued consumption growth. … Euro-zone Retail Sales (Apr.) & Final PMIs …
The drop in the euro-zone’s headline inflation rate in May was largely due to lower energy inflation and a reversal of Easter timing effects. But with wage growth likely to have peaked, we expect core inflation to remain weak, prompting the ECB to loosen …
4th June 2019
Swedish policymakers are increasingly vocal about their concerns that the sharp sell-off in the krona this year has gone too far. But we find little evidence to support the idea that the currency has been oversold. … Just how weak is the Swedish …
The morning’s release of inflation and PMI data from Switzerland for May showed that price pressures remain almost entirely absent and that the industrial sector remains in the shadow of the euro-zone. … Swiss CPI & Manufacturing PMIs …
3rd June 2019
This week was dominated by Q1 GDP data releases, which surprised on the upside in both Switzerland and Sweden. But while the Swiss outcome was a welcome sign, the Swedish figure masked domestic weakness, and timelier indicators suggest that the pace of …
31st May 2019
This week saw a fresh escalation of the tensions between Italy and the European Commission, and the publication of some fairly downbeat survey data. Combined with the very low inflation data we expect to be published next Tuesday, this will add to the …
Policymakers are likely to make two significant changes at their meeting next Thursday. They will probably announce that they expect to leave rates at present levels until at least mid-2020, rather than just to the end of this year as per current …
30th May 2019
Denmark’s forthcoming election has revealed a number of cracks within traditional party groupings which could complicate the coalition-forming process. But regardless of which parties end up in parliament, we think that the impact on fiscal policy will be …
Swedish GDP surprised on the upside in Q1 but the outcome masked domestic weakness. With surveys indicating that growth will slow again, and core inflation set to stay subdued, we continue to expect the Riksbank to leave its repo rate on hold into 2022. … …
29th May 2019
The small increase in the euro-zone’s Economic Sentiment Indicator (ESI) is a welcome bit of good news. But it is not enough to fully reverse its fall in April, and does not change our view that economic growth probably dropped back to around 0.2% q/q in …
28th May 2019
Swiss Q1 GDP data released this morning offer some comfort that the Swiss economy has put the weak patch in H2 2018 behind it. But indicators suggest that growth is likely to slow over the rest of this year. … Switzerland GDP (Q1) and Swedish ETI …
Projections of the results of the European elections confirm that pro-European parties will continue to have a clear majority in the European Parliament (EP) itself, so little will change at EU level. But there will be some fallout for national politics, …
27th May 2019
This week saw the release of another set of underwhelming business surveys, suggesting that the pick-up in GDP growth in Q1 will not be sustained, and some further evidence that price pressures remain very weak. The stage is therefore set for a dovish …
24th May 2019
The Swiss franc has strengthened in recent weeks, and we think that this trend will continue over the rest of the year. By contrast, despite the Swedish central bank’s concerns about the krona’s weakness, we expect it to fall further. … Swiss franc set to …
The account of the ECB’s latest monetary policy meeting confirms that policymakers were concerned about downside risks to economic activity and, particularly, inflation. This reinforces our view that the Bank is likely to seek ways to provide more policy …
23rd May 2019
The flash PMIs for the euro-zone continued to disappoint in May and suggest that the economic growth dropped back again in the second quarter. And with the Ifo Business Climate Index having fallen to a 54-month low in May, business surveys point to a …
The recent fall in financial market measures of inflation expectations may be a bit misleading, and is not matched by a comparable fall in households’ inflation expectations. But it is nonetheless another reason for the ECB to keep policy ultra-loose, or …
22nd May 2019
The Central Bank of Iceland’s decision to cut interest rates by 50bp to 4.00% came as a surprise. While it was prompted by a deterioration in the economic outlook, inflation expectations remain high and wage growth is strong. Given that the economic …
While the sharp downturns in the German motor vehicle and chemical sectors have attracted a lot of attention, the weakness of other sectors accounts for more of the slowdown in production since 2017. Accordingly, a sustained pick-up in growth is only …
21st May 2019
The recent sell-off in the Swedish krona to decade lows against the euro has been driven by a combination of a flare-up in global trade tensions and a dovish shift in the Riksbank’s policy stance. We think that things are likely to get worse before they …
20th May 2019
Developments this week suggest that Italy’s government is on another collision course with the European Commission. Meanwhile, the risk of US car tariffs has eased, but it has not disappeared. Finally, German Bund yields have continued to decline, partly …
17th May 2019
We suspect that the weather-related weak patch in Norwegian activity in Q1 will prove temporary. Meanwhile, following the recent flare-up in trade tensions and the Swedish Riksbank’s dovish shift, we have revised down our forecast for the krona. And as …
Recent comments by Italy’s deputy prime minister have increased the risk that Italy is placed in an EU disciplinary procedure later this year. There are a few ways that talks about Italy’s fiscal plans could play out, but all of them would lead to higher …
16th May 2019
Following the recent flare-up in global trade tensions and dovish shift in the Riksbank’s stance, we have revised down our already below-consensus end-2019 forecast for the krona against the euro from SEK 10.6 to 11.0. But we still expect it to recover …
Given that the improvement in Q1 was at least partly due to temporary factors, and that business surveys have remained uniformly downbeat, we suspect that the German economy will lose momentum again in the second quarter of this year. As a result, growth …
15th May 2019
The euro-zone industrial production data for March show that while output in the sector expanded in Q1, this was not enough to offset Q4’s contraction. And with global economic growth set to remain weak this year and next, euro-zone industrial production …
14th May 2019
The small pick-up in Swedish inflation in April was caused by the later timing of Easter this year. Amid signs that economic growth has slowed sharply in the first half of 2019, we expect headline inflation to fall back again over the coming months and …
The US is stepping up the pressure on China to agree a trade deal, and a deadline to decide whether to raise tariffs on all auto imports is looming. On their own, those tariffs would do little damage to the euro-zone, but if the US raised tariffs more …
13th May 2019
The slowdown in mainland Norway GDP growth in Q1, from an upwardly-revised 1.1% q/q in Q4 to 0.3% in Q1, was sharper than we had expected. However, the result was driven in part by a weather-related fall in electricity production, so we suspect that the …
This week saw further signs that the German economy regained some momentum at the end of Q1, as industrial production rose and exports picked up in March. But with the business surveys for March and April still looking grim, we doubt that the improvement …
10th May 2019
The Norges Bank held interest rates on hold at 1.00% at its meeting on Thursday but signalled that it will “most likely” resume its tightening cycle at the next meeting, in June. Meanwhile, the minutes from the Riksbank’s April policy meeting further …
Norwegian inflation data for April, released this morning, remained well above the Norges Bank’s 2.0% target and will reinforce policymakers’ current hawkish stance. … Norwegian & Danish Consumer Prices …
On current plans, national governments in the euro-zone will deliver a modest fiscal stimulus worth around 0.5% of GDP during 2019 and 2020 combined. Hopes that it might be scaled up significantly look misplaced given political preferences in Germany and …
9th May 2019
Euro-zone GDP growth was stronger than expected in Q1, at 0.4% q/q, but we suspect that it will slow again in the coming quarters. Activity was flattered by the comparison with a weak end to 2018 and construction was boosted by unusually good weather. …
