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Another weak set of PMIs point to loss of momentum into H2 The Swiss manufacturing PMI for June shows that conditions in the industrial sector have worsened going into H2, while the indicator from Sweden suggests that the economy contracted in the second …
1st July 2019
We had previously assumed that the EU would put Italy into an Excessive Deficit Procedure in July, but recent reports suggest that this might be postponed until later in the year. Either way, Italy’s public finances remain on an unsustainable path, and …
28th June 2019
Economy lost momentum in Q2 Business surveys released this week provided more evidence that the economy slowed again in Q2. The German Ifo Business Climate Index, released on Monday, fell to a 55-month low, and was followed on Thursday by the euro-zone …
Swiss-EU stock market equivalence is no more The spat between the Swiss government and the EU came to a head this week after it became clear that the EC will follow through on its threat to let the current ‘equivalence’ regime for share trading lapse from …
Higher core inflation won’t deflect ECB from loosening While headline HICP inflation came in unchanged in June, at 1.2%, the extent of the increase in services and core inflation was a bit of a surprise. But the increase in core inflation seems to have …
Franc to rise further despite subdued Swiss activity The modest decline in the Swiss KOF Economic Barometer in June lends further support to our view that the Swiss economy will lose momentum over the course of this year. And with the franc likely to rise …
Portugal recovered well from the euro-zone crisis and its economy is set to record above-trend growth for the rest of this year and next. But its high public and private debt levels suggest that it is vulnerable to an increase in interest rates and/or a …
27th June 2019
Weaker sentiment bolsters case for further ECB action June’s sharp decline in the euro-zone Economic Sentiment Indicator (ESI) is consistent with our view that GDP growth in the currency union slowed to 0.2% q/q in Q2. It is also likely to strengthen ECB …
Following this morning’s decision by the Central Bank of Iceland (CBI) to cut its key interest rate by 25bps, we now think that further cuts are in the pipeline. However, to the extent that a rumoured fiscal stimulus and a weaker króna help to steady the …
26th June 2019
Recent comments by Mario Draghi suggest that the ECB will loosen policy sooner than we had anticipated. We now expect the Bank to strengthen its forward guidance in July and cut its deposit rate in September. Mr Draghi is then likely to go out with a bang …
While the escalating spat between Switzerland and the EU has drawn obvious parallels with Brexit, the implications for Switzerland are likely to be quite modest. And while Brexit has taken a toll on sterling, the latest dispute is unlikely to detract from …
Having seen the Swiss franc climb close to a two-year high this week following the flare-up in tensions between the US and Iran, the SNB will surely consider intervening soon – particularly if these geopolitical tensions persist. Nonetheless, with the ECB …
21st June 2019
The ECB is lining up further stimulus, and we doubt that even a Jens Weidmann presidency could stop it. Meanwhile, the decline in bond yields in Italy this week increases the risk that the government presses ahead with tax cuts, weakening the public …
The slight improvement in the flash PMIs for June will not be enough to deflect the ECB from its new plan to ease policy within the coming months. We expect it to cut its deposit rate by 10bp in September. … Euro-zone Flash PMIs …
Cyprus has now recovered from the economic crisis of 2012-13, which was caused primarily by its oversized banking sector. While a number of risks remain, notably the high level of non-performing loans, we expect the economy to continue expanding more …
20th June 2019
This morning’s decision by the Norges Bank to raise its policy rate from 1.00% to 1.25% came as no surprise. But while policymakers left the door open for further rates hikes in 2019, we think there is only room for one more 25bp hike in the current …
Investors have slashed their expectations for interest rate hikes in Sweden over the coming years and are now broadly in line with our previously well below consensus view. But while we now forecast the ECB to lower rates a little further into negative …
19th June 2019
The next Greek government, to be formed after a general election which is less than three weeks away, will inherit an economy that looks set to grow at a moderate pace in the near term. But it will also face a host of unresolved structural problems and …
18th June 2019
Mr Draghi’s speech at the ECB’s conference this morning is the clearest indication yet that the Bank will cut interest rates and relaunch its asset purchase programme in the coming months if, as we expect, measures of inflation and inflation expectations …
Following March’s sharp fall, the euro-zone’s nominal goods trade surplus narrowed further in April. Given the softening of the export orders indices since the start of the year, we think that net exports will continue to weigh on economic growth. … …
The small interest rate cut that we now forecast by the ECB in December is unlikely to be matched immediately by Denmark’s Nationalbank (DNB). But given that upward pressure on the krone is now likely to build sooner than we previously thought, we expect …
The small pick-up in total labour cost growth to 2.4% y/y in Q1 was concentrated in the economies which have been hit hardest by the recent downturn and where the labour market has already begun to soften. With this in mind, we suspect that wage growth …
17th June 2019
Following Mario Draghi’s more dovish comments earlier in the month, we now think the Governing Council is more willing to loosen policy further and have revised our already more-dovish-than-consensus interest rate and QE forecasts. Next week, the European …
14th June 2019
The Swiss National Bank’s decision to leave its monetary policy settings unchanged on Thursday was something of a formality. But whereas some commentators have suggested that the Bank is out of ammunition, we think it is on course to cut interest rates …
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. … …
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
