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The fundamental differences between Italy’s Five Star Movement and League suggest that even if the parties agreed to form a government, they would not agree to implement either party’s more extreme and costly policy proposals. But we would still expect to …
26th March 2018
A key hurdle in securing a relatively smooth UK exit from the EU has been passed. The Brexit transition deal preserves the current economic relationship between the UK and the EU for 21 months after the UK technically leaves the bloc in March 2019. …
23rd March 2018
The Swiss National Bank is likely to reduce its currency interventions further over the next couple of years as other central banks start to normalise policy and the Swiss economy is better able to withstand a franc appreciation. But an outright reduction …
22nd March 2018
March’s PMI and Ifo surveys point to a softening of euro-zone growth, which we had expected after such a strong run and which has not caused us to change our upbeat GDP forecasts. But it certainly supports the ECB’s cautious approach to policy …
The weakness of euro-zone productivity growth since the global financial crisis can in part be attributed to cyclical factors. As these factors reverse, there is scope for economic growth to remain strong without a corresponding sharp rise in inflation. …
21st March 2018
While the Central Bank of Iceland’s forecasts imply that it intends to scale back its controls on foreign investment later this year, we think that it will end up leaving them unchanged until 2020. … When will Iceland drop its remaining capital …
The Nordic central banks are all moving towards tightening monetary policy, albeit at different speeds. We think that higher interest rates will come first in Sweden, pushing up government bond yields there fairly quickly. By contrast, the Swiss National …
20th March 2018
March’s sharp decline in the ZEW measure of German investor sentiment highlights the risks to the economy. While Germany would be hit harder than most by a trade war, for now the outlook is positive. … German ZEW Survey …
The euro-zone’s nominal goods trade surplus narrowed in January, and since then survey indicators of export orders have weakened slightly. Nevertheless, we think that the euro-zone’s trade surplus will remain fairly wide, suggesting that tension between …
19th March 2018
The latest inflation data in the Nordic countries and Switzerland have generally been quite weak. Indeed, inflation in Switzerland slowed to a five-month low of 0.6% in February. The core rate was unchanged from the previous month at 0.5%, while the rate …
16th March 2018
This week has featured a raft of speeches from the ECB’s Governing Council on the outlook for monetary policy, displaying a range of views among its members. Several would clearly prefer to end asset purchases in September, while others favour a much more …
Today’s euro-zone labour costs data support our view that the ECB will act very patiently in normalising its monetary policy stance. Indeed, higher interest rates remain a long way off. … Euro-zone Labour Costs …
Ireland’s GDP had another very strong year in 2017. While that tells us little about actual economic activity taking place in the country, other more reliable indicators suggest that the economy performed well last year and got off to a good start in …
15th March 2018
Following the recent reduction in its inflation target, the Norges Bank now clearly expects to begin raising interest rates this year. However, we think that it will tighten monetary policy more slowly than investors anticipate. Along with our forecast …
Despite sounding a slightly more positive tone on the economy, the Swiss National Bank today reiterated that the Swiss franc remained “highly valued” and that it still needed to keep interest rates at rock-bottom levels and intervene in the currency …
Introducing a parallel currency could help to stimulate Italy’s economy by providing a fiscal boost and leading to an improvement in competitiveness. That said, despite some of the eurosceptic parties’ claims, it would be akin to leaving the euro-zone. It …
14th March 2018
Labour shortages are a growing problem in parts of the euro-zone and are likely to persist due to mismatches of skills and barriers to relocation. But given the degree of labour market slack in the likes of Italy and Spain, and the decline in workers’ …
January’s fall in euro-zone industrial production marked a weak start to 2018, but much of the decline was due to temporary weather effects. The business surveys suggest that once this volatility washes out, the sector will continue to perform well. … …
While the Central Bank of Iceland left policy unchanged today, it also acknowledged that inflation expectations are rising. We expect higher actual and expected inflation to prompt the Bank to raise interest rates in the next two years, contrary to the …
With Swedish inflation unchanged at a joint 10-month low in February, we see the Riksbank changing its forward guidance next month to signal that it will raise interest rates later than it previously forecast. But we still think that the Bank will tighten …
In addition to reducing the monthly pace of its asset purchases from €60bn to €30bn, in January the ECB also changed the composition of its purchases. Corporate sector debt now accounts for a larger share of the total, as we expected. This should help to …
9th March 2018
The Norges Bank’s new inflation target strengthens the case for tighter monetary policy. But we think that the Bank will move very cautiously. … How big a deal is the new lower inflation …
Inflation in Norway rose quite sharply in February, but we do not think that it is about to surge. Meanwhile, Icelandic GDP growth would have been negative in Q4 was it not for a one-off intellectual property payment which boosted exports. Nevertheless, …
Large declines in energy output as a result unseasonably-warm temperatures explain much of the weakness in industrial production across the euro-zone in January. Meanwhile, the business surveys remain strong. So euro-zone industry is likely to fare better …
In an environment of global uncertainty, the Swiss National Bank will be wary of exacerbating any upward pressure on the safe haven franc when it meets on 15th March. Admittedly, its forecast for inflation to surpass 2% by 2020 suggests that it may soon …
8th March 2018
The ECB’s decision to remove the loosening bias from its monetary policy statement today was arguably the first step along a path of policy normalisation. But note that its balance sheet will continue to expand with new asset purchases until at least …
Little has changed since the Central Bank of Iceland’s (CBI) last policy meeting, so we expect it to keep policy unchanged next week. Later this year, we see the Bank raising interest rates. … Central Bank of Iceland on hold for time …
7th March 2018
After a tough start to 2018, we think that equities in the Nordic countries and Switzerland will continue to struggle over the next couple of years. But their performance will be far from uniform. … Will Nordic and Swiss equities continue to …
The first breakdown of euro-zone Q4 GDP showed that consumer spending growth slowed to just 0.2%, the weakest rate since Q1 2014. Encouragingly though, this appears to have been due to temporary factors. Indeed, unseasonably-warm weather throughout much …
The third estimate of euro-zone GDP in Q4 showed that the 0.6% expansion was driven mainly by net exports. Timelier evidence suggests that growth is no longer accelerating, but we still expect the economy to continue growing at a fairly strong pace this …
With clear signs that inflationary pressures are growing in Germany, core inflation looks set to rise. But as this will be gradual and price pressures elsewhere are subdued, it will be of little concern to the ECB. … German core inflation to rise only …
6th March 2018
The further decline in Swiss inflation in February to a five-month low will add to the Swiss National Bank’s caution ahead of its monetary policy meeting next week. Indeed, subdued inflation is likely to mean that the Bank maintains its accommodative …
The direct macroeconomic effects of President Trump’s proposed tariffs on EU exports would be very small. However, if this signals the beginning of a bigger shift towards US protectionism, followed by sustained EU retaliation, the economic implications …
5th March 2018
The recent softness of euro-zone retail sales is probably due to temporary factors and surveys bode well for the outlook. Meanwhile, the Greek economy finished last year on a weak note. … EZ Retail Sales (Jan.), PMIs (Feb.) & Greek GDP …
The lengthy political uncertainty that seems likely to follow Italy’s election is unlikely on its own to do much economic damage. But we suspect that the prospect of looser fiscal policy, higher debt, and the possibility that the Five Star Movement once …
The latest survey indicators all suggest that GDP growth in the euro-zone has peaked. That said, the economic recovery looks set to continue at a healthy pace over the next few years. … Has euro-zone growth …
2nd March 2018
The large imbalances in the euro-zone’s TARGET2 payments system indicate that all is still not quite right in the region. There are some good reasons to expect the imbalances to narrow again over the next few years. But there is also a risk that sentiment …
The first breakdown of Italy’s GDP in Q4 showed that the slowdown in growth was driven by household spending. This is perhaps unsurprising given that real wages are falling, and might also explain the loss of support for the Government ahead of Sunday’s …
With the economy still performing well and the euro off the boil, we expect the ECB to remove the loosening bias from its forward guidance when it meets on 8th March. But the persistent weakness of inflation will have convinced the Bank to take a cautious …
1st March 2018
While all of the Nordic currencies and the Swiss franc depreciated against the dollar in February, weak Swedish inflation data and dovish comments from the Riksbank meant that the drop in the krona was by far the largest. Meanwhile, many countries’ …
While the euro-zone unemployment rate held steady in January and the number of unemployed people only edged down, surveys suggest that the labour market recovery should regain momentum. But the improvement in labour market conditions seems likely to …
The first breakdown of Spanish GDP showed encouragingly broad-based growth in Q4 despite the effects of the political crisis in Catalonia. Meanwhile, the surveys paint a positive picture of the outlook. … Spain GDP (Q4, …
The Swiss economy ended 2017 on a fairly strong note and the surveys paint a positive picture for 2018. But with inflation set to remain subdued, we think that the SNB will wait until 2020 to raise rates. … Swiss GDP (Q4) & Retail Sales …
February’s Swiss, Swedish and Norwegian manufacturing PMIs point to continued strong growth. But this only seems to be causing underlying inflationary pressure to build in Sweden. … Manufacturing PMIs …
Italy’s general election on Sunday 4th March seems likely to result in a government that pushes for a small fiscal stimulus, largely centred on tax cuts. But we doubt that this would provide much of a boost to the economy. And the next government will …
28th February 2018
February’s decline in headline inflation does not change our view that the ECB will drop the easing bias from its forward guidance at its meeting on 8th March. But with core inflation still weak and likely to rise only slowly, we think that interest rate …
Sweden, Finland and Denmark all grew strongly in Q4 last year. While growth in Sweden and Finland is likely to outpace that in Demark in 2018, the big picture is that the outlook for each economy is bright. … Sweden, Finland & Denmark GDP …
February’s decline in German inflation reflected falls in the volatile food and energy components. But the still subdued rate of core inflation will encourage the ECB to take a cautious approach to communicating policy normalisation after its meeting next …
27th February 2018
February’s EC Business and Consumer Survey suggests that the euro-zone economy continued to grow strongly in early 2018, but that inflation expectations remain subdued. This supports our view that the ECB will tread cautiously in normalising monetary …
Euro-zone lending growth made a strong start to the year. And with interest rates likely to rise only slowly as the ECB normalises policy, bank lending looks set to continue supporting economic growth. … Euro-zone Monetary Indicators Monitor …
