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We think that faster wage growth in the core countries will drive aggregate euro-zone wage growth up over the next few years, prompting the ECB to raise interest rates. But wage growth in the periphery looks set to be much weaker, and might even start to …
3rd October 2018
After almost five years of deflation, consumer prices are finally rising in Switzerland. But much of this has reflected higher energy costs, while underlying price pressures are still very weak. We therefore expect “lowflation” to persist, keeping the …
Although the Central Bank of Iceland left monetary policy unchanged today, it reiterated that it was prepared to take action if inflation expectations rise further. We think that this is likely and continue to expect the Bank to raise interest rates by …
August’s euro-zone retail sales data suggest that spending growth failed to gain pace in Q3, but there are good reasons to think that sales volumes will accelerate as inflation falls in the months ahead. The final Composite PMI suggests that the euro-zone …
Amid the concern about the state of Italy’s public finances, the banks remain the country’s weakest link. Indeed, despite improvements over the past few years, the banking sector is still too weak to withstand the impact of much higher bond yields for …
Greece’s draft budget for 2019 suggests that the country is taking its fiscal targets much more seriously than Italy. But a closer look at the proposed measures implies some fiscal slippage, which could intensify around next year’s election increasing the …
2nd October 2018
The economic assumptions underpinning Italy’s budget forecasts look over-optimistic. As a result, while the Government expects the public debt ratio to fall over the next few years, we think that it will rise. … Italy’s GDP growth forecasts are far too …
1st October 2018
September’s falls in the Swiss and Norwegian manufacturing PMIs leave them still pointing to strong growth in the sector. But it is in Sweden that price pressures seem to be strongest. … Manufacturing PMIs …
August’s further fall in euro-zone unemployment adds to evidence that wage growth is likely to rise further in the coming months, supporting the case for gradual ECB policy normalisation. But there are still dramatic differences by country. … Euro-zone …
The Italian and French governments’ fiscal plans, announced this week, suggest that the headline budget deficit will be similar in both countries over the next few years. But we suspect that the deficit in Italy will be bigger than the official target. …
28th September 2018
There are still no signs that domestic political uncertainty is weighing on the Swedish economy, so we continue to expect the Riksbank to raise rates in December. Meanwhile, rising inflation expectations mean that Iceland’s central bank is likely to …
We think that Italy’s budget deficit will be even wider over the next few years than the Government’s projections imply. As a result, we expect bond yields to keep on rising. But unless yields surge, or there are clearer signs of contagion, the ECB is …
The further decline in core inflation in September was a little disappointing and, against a backdrop of slower economic growth, will ensure that the ECB remains very cautious in its approach to normalising policy. We think that the first hike will come …
Despite rebounding in September, the KOF Economic Barometer still suggests that Swiss GDP growth is set to slow over the coming months. And with inflation very weak, we expect the SNB to keep interest rates on hold until 2020. … Swiss KOF (Sep.) & Danish …
September’s fall in the EC’s measure of euro-zone economic sentiment adds to the evidence that economic growth is slowing. This slowdown isn’t sharp enough to deter the ECB from ending its asset purchases this year, but it supports the Bank’s cautious …
27th September 2018
September’s further rise in the Economic Tendency Indicator suggests that neither uncertainty about the domestic political environment nor worries about rising trade protectionism have damaged the Swedish economy. … Sweden Economic Tendency Survey …
The draft French Budget for 2019 confirmed that the Government intends to tighten underlying fiscal policy a little. But several of the planned measures should serve to stimulate private spending, supporting our forecast that GDP growth will pick up next …
25th September 2018
Today’s ouster of Swedish Prime Minister Stefan Löfven might seem to justify yet another delay to the Riskbank’s policy normalisation plans. But the economy should continue to perform well and might even fare better under a new government. And since price …
September’s small fall in the Ifo Business Climate Indicator (BCI) did little to reverse the previous month’s increase and left the index consistent with strong annual GDP growth of over 2%. … German Ifo Survey …
24th September 2018
The Norges Bank’s “dovish hike” this week caused the krone to weaken, and we think that this is a sign of things to come. Meanwhile, the Swiss National Bank left policy unchanged, and we suspect that it will keep interest rates at record lows for longer …
21st September 2018
The latest data add to the evidence that the slowdown in the euro-zone economy this year has not just been down to a series of “one-offs”. We expect growth to slow further over the next couple of years. Meanwhile, a speech by a member of the ECB’s …
The softening of the euro-zone Composite PMI in September adds to evidence that the region’s economy has lost some momentum after 2017’s very strong expansion. But as the index is still consistent with a decent pace of growth, the ECB is unlikely to …
The Norges Bank has announced its first interest rate hike in seven years, but we suspect that the tightening process will be over much sooner than policymakers or investors envisage. … Norges Bank tightening to end sooner than most …
20th September 2018
The Swiss National Bank stuck firmly to its ultra-accommodative policy stance today and sounded more downbeat about the outlook, revising down its medium-term inflation forecasts in light of the recent appreciation of the franc. With inflation set to …
Euro-zone industrial production has slowed surprisingly sharply this year as producers have suffered from an investment-led global slowdown and an appreciation of the trade-weighted exchange rate. Since neither trend looks set to reverse, we have revised …
19th September 2018
The Swiss and Nordic economies generally performed well in Q2, but most of the timelier survey indicators point to slower growth to come. Switzerland’s economy expanded very strongly in the first half of the year, boosted by revenues from international …
18th September 2018
The latest comments from the ECB’s Benoît Coeuré suggest that future guidance about the pace of policy tightening might hinge on developments in wage growth. In our view, this would be a positive development, reducing the risk that the historically …
Political uncertainty following Sweden’s general election last weekend is unlikely to meaningfully alter the Riksbank’s plans to start tightening policy around the turn of the year. Meanwhile, in Norway, stronger August inflation data this week will have …
14th September 2018
Despite the recent softening of the economic data, on Thursday ECB President Mario Draghi maintained a positive tone on the outlook for GDP growth and inflation. And the Q2 labour cost data, published on Friday, will have given policymakers further cause …
The pick-up in euro-zone wage growth in Q2 adds to signs that inflationary pressures in the region are building. This will encourage the ECB that it is right to be normalising monetary policy. But with wage growth and core inflation set to rise only …
Although CPIF inflation was above target in August, the further decline in non-energy inflation will worry the Riksbank. If it remains soft, then the Bank will probably keep rates on hold until early 2019. … Swedish Consumer Prices …
The ECB today confirmed its intention to normalise policy gradually, expressing very little concern about signs of an economic slowdown. Given growing risks and economic uncertainty, the first interest rate hike is still at least a year away. But the …
13th September 2018
July’s euro-zone industrial production data marked a very weak start to Q3 and support the ECB’s cautious approach to policy normalisation. … Euro-zone Industrial Production …
12th September 2018
While Sweden looks set for a period of political uncertainty, the broad fiscal consensus among mainstream politicians suggests that, whoever takes power, the near-term economic outlook will not be radically different. But given rising support for the …
11th September 2018
The role of weakening exports in Germany’s recent slowdown makes it tempting to pin the whole thing on trade tensions. But the slowdown began before Trump’s tariff threats and seems more likely to reflect softer demand from Asia and Emerging Europe, as …
After providing a big boost to GDP growth last year, net exports were a drag on growth in the first half of 2018. This does not look like a temporary response to heightened trade tensions. Instead, it largely reflects three developments: a slowdown after …
Following August’s increase in core inflation to a 19-month high, the Norges Bank is almost certain to raise interest rates at next week’s meeting. But policymakers remain cautious about the impact of tighter monetary policy, so they will move very slowly …
10th September 2018
Markets Overview – We think that a combination of policy loosening by major central banks, an increase in investor risk aversion, and mounting trade tensions will lead to bond yields in Switzerland and the Nordics staying lower for longer and equities …
9th September 2018
The latest opinion polls suggests that Sunday’s general election in Sweden will be a close call. But the outcome of the vote is unlikely to significantly alter the outlook for the economy or monetary policy. Meanwhile, data published this week showed that …
7th September 2018
The latest official data on activity in the euro-zone have been fairly weak, but the timelier survey indicators paint a more positive picture. Meanwhile, Italian bond yields have fallen recently following comments from the Government that it would stick …
The third estimate of euro-zone Q2 GDP confirmed that net trade was a drag on growth for the second consecutive quarter. But with domestic demand strong and the timelier survey evidence encouraging, we remain fairly optimistic about the economic outlook. …
Despite mixed news from the economy and growing risks to the outlook, we expect the ECB to reiterate that asset purchases are set to end in December and that interest rates will probably rise gradually from next autumn. It will stress its ability to …
6th September 2018
Despite the more dovish tone of today’s policy announcement, the Riksbank looks likely to raise interest rates in December. We think that the Bank will then tighten more quickly in 2019 and 2020 than investors expect, causing the krona to strengthen. … …
This morning’s GDP data and the timelier surveys show that the Swiss economy is growing at a fairly strong pace. But inflationary pressures remain subdued. As a result, we still think that the SNB will wait until 2020 before raising raise interest rates, …
July’s euro-zone retail sales data imply that the sector had a slow start to Q3, but the timelier indicators are more encouraging. And the message from August’s PMI surveys was positive for the euro-zone economy as a whole. That said, in Italy, policy …
5th September 2018
Greater autonomy for Catalonia would probably have a detrimental impact on Spain’s public finances. But it would reduce calls for secession, and therefore limit the risk of a renewed and potentially damaging push for independence. So in the long run, it …
4th September 2018
Uncertainty about the outlook for the economy and monetary policy in the euro-zone is unusually low. While it is unlikely to return to the levels seen during the financial crisis or euro-zone debt crisis any time soon, we suspect that it will rise over …
In August, Swiss inflation was unchanged at its joint-highest level in over eight years. But underlying price pressures are subdued, and we think that falling oil prices and exchange rate effects will drag headline inflation down over the next year. So …
The Swiss franc has strengthened against the euro this week, but we doubt that this will last. Meanwhile, we think that Sweden’s forthcoming general election is unlikely to have much of a macroeconomic impact. … Swiss franc strength unlikely to …
31st August 2018
Euro-zone data published this week showed a picture of fairly strong growth but continued subdued inflationary pressure. In the coming years, we expect GDP growth to slow, but underlying inflation to creep up. Meanwhile, we doubt that the US-Mexico trade …
