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Norway’s mainland GDP recorded another strong expansion in Q4, rounding off a pretty good year for the economy. However, inflation slowed sharply in January, highlighting that price pressures remain subdued. As a result, we think that the Norges Bank will …
9th February 2018
While US interest rate expectations for this year have risen into line with our own, this has not undermined the euro as we had anticipated. Instead, markets have focused on the strength of the euro-zone economy and perhaps the possibility that the US …
8th February 2018
While equity markets in the euro-zone have recently declined alongside those in the US, activity surveys continue to paint a very healthy picture of the economy. Indeed, the euro-zone Composite PMI increased to a 12-year high in January and, although it …
With the Riksbank on track to raise interest rates this year, it is likely to test the water soon by dropping its pledge to loosen policy further if necessary. But as inflation expectations in Sweden have softened in recent months, we suspect that the …
The franc’s downward trend went into reverse last month and turbulence in global financial markets has since threatened to push it up further. In the event of a sustained rout in equity markets, the safe haven currency would probably appreciate. But as …
7th February 2018
As the recent rise in inflation has been due to temporary exchange rate effects, it was little surprise that the Central Bank of Iceland left policy unchanged today. But with further rises in inflation set to put upward pressure on inflation expectations …
December’s fall in German industrial production came as no surprise after a surge in November and it is very unlikely to mark the start of a downward trend. We still see German GDP rising by about 2.7% this year and 2% next. … German Industrial Production …
Despite falling in December, Swedish private production growth accelerated over Q4. With the economy’s strong performance causing inflationary pressures to build, the Riksbank remains on track to raise interest rates this year. … Swedish Private …
6th February 2018
Recent accusations that Germany has “cooked the books” to downplay its current account surplus are wide of the mark. But the surplus is clearly very large and seems unlikely to narrow in the next couple of years. So the country will remain under …
5th February 2018
December’s fall in euro-zone retail sales followed a sharp rise in November and the high level of consumer confidence suggests that sales growth should soon pick up. Meanwhile, the final PMI for January comfirmed that the region made a great start to …
German Bund yields continued to rise this week, with the 10-year yield hitting a 29-month high. Higher yields are unlikely to have much of a direct effect on the German economy, but by boosting the euro they may have significant indirect effects. Indeed, …
2nd February 2018
Following developments in other developed economies this year, Nordic and Swiss currencies have appreciated while equity prices and bond yields have risen. Norway’s currency has outperformed, largely thanks to the rise in oil prices. But we doubt that …
1st February 2018
The strength of France’s economic recovery and improving conditions in the labour market suggest that core inflation will soon start to rise from its current depressed levels. But recent reforms will keep a lid on wage growth which, along with the rise in …
Inflation pressures seem to be rising faster than we had expected. As a result, we now see the Central Bank of Iceland raising interest rates this year. … Central Bank of Iceland to raise rates later this …
January’s Swiss, Swedish and Norwegian manufacturing PMIs generally point to strong growth. But only in Sweden do we expect this to feed through to significant and sustained inflation pressure. … Manufacturing PMIs …
January’s fall in euro-zone inflation largely reflected energy effects, so won’t be a major concern to the ECB. But December’s labour market data emphasise that there is still slack in the labour market, so underlying inflationary pressure is likely to …
31st January 2018
Recent pay demands by German trade unions may look like a sign that the economy’s strength is causing a surge in inflationary pressure. But the demands are very unlikely to be met in full. We expect a moderate rise in wage growth to lend support to …
30th January 2018
January’s fall in German inflation partly reflected energy effects, and the rate is likely to rise again in the months ahead. But with core inflation still subdued in Germany and significantly weaker elsewhere in the euro-zone, the ECB is unlikely to be …
Euro-zone GDP growth continued at a healthy pace in Q4 and, while the EC’s Economic Sentiment Indicator declined in January, it continues to point to a pick-up in growth to come. … Euro-zone GDP (Q4, prelim. flash) & EC Survey …
Despite January’s sharp fall in the Swiss KOF Economic Barometer, the indicator is still broadly consistent with annual GDP growth picking up to around 2%. With exporters benefiting from a weaker franc, the outlook for growth is bright. But with inflation …
The French economy’s healthy expansion in Q4 rounded off a strong year, while surveys point to an acceleration in growth ahead. Meanwhile, tensions in Catalonia had little impact on Spanish growth. … French & Spanish GDP …
Investors appear to be calm ahead of Italy’s forthcoming election, and we think that they are right not to panic. That said, the next government is likely to be more lax with fiscal policy, so we think that Italian bond spreads will rise after the …
29th January 2018
While ECB President Mario Draghi sounded positive on the outlook for inflation at this week’s press conference, he did so with a justified degree of caution. After all, there is still economic slack in some member states that will keep a lid on wage …
26th January 2018
Euro-zone lending growth remained healthy in December, and with interest rates likely to rise only very slowly as the ECB normalises policy, bank lending looks set to continue supporting economic growth. … Euro-zone Monetary Indicators Monitor …
The ECB did not alter its forward guidance today, stressing that it will exercise patience and persistence when normalising policy and voicing concern about the strong euro. The currency’s further rise is puzzling against this backdrop, but only …
25th January 2018
January’s rise in German Ifo business sentiment is another sign that the economy is going great guns, but with the euro so strong the ECB seems unlikely to give a firm end date for its asset purchases today. … German Ifo Survey …
While today’s Norges Bank announcement implies that it still expects to raise interest rates this autumn, we think that below-target inflation and weakness in the housing market will cause the Bank to wait until next year. Along with our forecast for oil …
The Economic Tendency Survey suggests that the Swedish economy lost some momentum at the start of 2018. But this is unlikely to prevent the Riksbank from tightening policy later this year. … Sweden Econ. Tend. Survey (Jan.) & Unemploy. …
January’s jump in the euro-zone Composite PMI marked an exceptionally strong start to 2018. But while the data appear to strengthen the case for the ECB to “revisit” its forward guidance early this year, the euro’s continued rise will probably cause the …
24th January 2018
January’s increase in the ZEW measure of investor sentiment confirms that investors are upbeat about Germany’s economic prospects despite the recent rise in the euro. … German ZEW Survey …
23rd January 2018
Italy’s coalition of centre-right parties has proposed a raft of sweeping policies that would cause a blow-out in the budget deficit and possibly a significant shrinking of the workforce. But in practice the most that they can hope for is to pass …
The ECB has effectively introduced a “put” option on peripheral bonds, pushing yields and spreads down to record lows. Given recent fiscal progress and the likelihood that the ECB normalises policy very slowly, we doubt that yields will soar. But there is …
22nd January 2018
Prospects for the Nordic economies and Switzerland are strong, but there are divergent outlooks for monetary policy. In Sweden, inflation is already close to the Riksbank’s target and, with capacity constraints starting to bite, inflationary pressures are …
The fiscal proposals agreed by Angela Merkel and Martin Schulz as part of their plan to renew Germany’s grand coalition amount to a headline-grabbing 1.5% of annual German GDP and include abolishing the solidarity tax for most workers, increasing social …
19th January 2018
While the ECB maintained all elements of its policy support last month, the recent news that it would soon “revisit” its forward guidance saw rate expectations rise and the euro strengthen. At its meeting on 25th January, we see the Bank dropping its …
18th January 2018
The euro-zone’s impressive upturn looks set to continue apace as reduced political uncertainty, high levels of business confidence, and continued strong policy support allow investment to take off. Growth has also broadened across the region, with labour …
With consumer price inflation set to rise gradually, but house prices falling, we think that the Norges Bank will reiterate next week that interest rates will not rise until the autumn. We suspect that it will ultimately wait until 2019 before tightening …
The three major Nordic and Swiss central banks met in December and provided very different messages about the outlook for monetary policy in their respective countries. First, the Swiss National Bank (SNB) left policy unchanged and, despite the franc’s …
15th January 2018
The widening of the euro-zone’s goods trade surplus in November suggests that the euro’s strength is doing little to hurt the region’s exports. With the global economy in good health and world trade growing at a decent pace, we suspect that strong export …
Two of the leading contenders to form a government after Italy’s general election on 4th March advocate a radical overhaul of the country’s tax code. Their plans would result in a substantial reduction in taxes that they claim would provide a big boost to …
12th January 2018
Swedish policymakers will be discouraged by the fact that the decline in inflation in December was due to slower inflation for domestic goods and services. But with resource utilisation strong, domestic inflation looks set to pick up this year. We think …
November’s jump in euro-zone industrial production suggests that the sector finished last year on a strong footing, adding to the evidence that overall GDP growth picked up in Q4. And the manufacturing surveys point to a decent start to 2018. … Euro-zone …
11th January 2018
While the Riksbank’s early bond reinvestments will make policy slightly more expansionary in the short term, the minutes of December’s meeting suggest that the decision to bring forward reinvestments was taken mainly to avoid liquidity problems. There was …
10th January 2018
Despite December’s jump in inflation in Norway, underlying price pressures remain subdued. With house price inflation falling further into negative territory, we suspect that it will be a long time before the Norges Bank begins to raise interest rates. …
At the start of January, the euro reached a three-year high against the US dollar and a three-and-a-half year high in trade-weighted terms. While the euro’s climb over the past year or so may seem like a major headwind to economic growth, we remain …
9th January 2018
The euro-zone unemployment rate fell for the fourth consecutive month in November, highlighting the continued recovery in the labour market. But this will prompt only a modest pick-up in wage growth. … Euro-zone Unemployment …
November’s surge in German industrial production and the widening of the trade surplus brought welcome reassurance that the economy approached the end of 2017 in very good health. What’s more, the surveys point to further strength to come. … German …
Italy’s general election in March looks likely to produce a fragmented government with eurosceptic tendencies. We don’t think that it will pull Italy out of the euro-zone, but it may cause yields to rise. … Would Italian politicians really pull Italy out …
8th January 2018
December’s EC Business and Consumer Survey suggests that the euro-zone economy gained yet more momentum at the end of 2017, but inflation expectations remain low. This supports the ECB’s gradual approach to normalising monetary policy. We think that it …
While Swiss headline inflation was unchanged in December, there was a welcome rise in the core rate. But the big picture is that inflationary pressures remain subdued, so the Swiss National Bank will stick to its ultra-accommodative monetary policy …
