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The French economy’s decent start to 2015 is unlikely to have been sustained in Q2. Looking further ahead, we think that the recovery will struggle to gain significant pace over the next few years. In particular, high unemployment and inadequate reforms …
9th July 2015
EC President Jean-Claude Juncker’s claim that Greece’s creditors now have a “detailed Grexit scenario” may be a bluff to strengthen their bargaining position. But it is not hard to imagine what the key elements of a Plan B for Greece would consist of. … …
8th July 2015
Although the ECB’s OMT programme may allow Portugal to weather a Grexit, the country still faces serious challenges that might jeopardise the country’s long-term position within the currency union. … Is Portugal the euro-zone’s next weakest …
While Greece and its creditors look set to make one last attempt to reach an agreement, it might very soon be time to accept the inevitable and refocus efforts on how best to manage the country’s exit from the currency union. … Time to let Greece …
7th July 2015
Sweden’s exporters are finally starting to feel the benefits of the krona’s decline over the past couple of years. But firms’ desire to widen profit margins, weak global demand and uncertainty about the krona in the face of ECB stimulus and the Greek …
May’s German industrial production figures supported other evidence suggesting that the euro-zone’s main growth engine is unlikely to have picked up speed in Q2. … German Industrial Production …
While yesterday’s resounding Oxi (No) vote in the Greek referendum does not guarantee a Greek exit from the euro-zone, it has surely raised the probability of such an event further above 50%. … Oxi vote pushes Grexit probability further above …
6th July 2015
Sunday’s Greek referendum result looks likely to be very close. But regardless of whether the outcome is Nai or Oxi , unless any resulting deal includes a substantial form of debt relief, the crisis will not come to an end and Greece’s continued …
3rd July 2015
Although euro-zone retail sales only rose slightly in May, the outlook for consumer spending is bright. And the rise in June’s composite PMI suggested that the wider recovery was sustained in Q2, despite the crisis in Greece. … Euro-zone Retail Sales …
The large degree of spare capacity in the Greek economy suggests that it could perform well if the constraints of fiscal austerity and a strong currency were removed via a euro-zone exit. But Greece’s performance would depend on policies to tackle the …
Sweden’s central bank today stepped up its monetary policy stimulus to protect the nascent uptrend in inflation and fight the recent strengthening of the krona . But with the upward pressure on the currency unlikely to abate, we think that the Riksbank …
2nd July 2015
Recent reforms will help Italy’s fragile banking system. But a legacy of bad debts and the earlier tightening of lending standards will weigh on the country’s recovery for a while yet. … Reforms will help Italian banks crawl back to …
Sweden’s central bank today stepped up its monetary policy stimulus to protect the nascent uptrend in inflation and fight the recent strengthening of the krona. But with the upward pressure on the currency unlikely to abate, we think that the Riksbank may …
Greece’s crisis escalated further in June, culminating in a default to the IMF, the imposition of capital controls and the expiry of the second bailout programme. In response, Greek 10 year government bond yields have shot up to almost 15%. But outside of …
1st July 2015
The expiry of Greece’s second bailout programme and its “default” to the IMF have raised the crisis to a new level. With latest polls suggesting that a majority of voters will vote to reject the creditors’ latest offer in Sunday’s referendum, the risks of …
The declines in oil prices since last summer might add as much as 1 percentage point to euro-zone consumer spending growth this year. However, unless oil prices fall further , which we do not expect, this boost will fade in 2016. This is a key reason …
A Yes vote in Sunday’s Greek referendum, if it goes ahead, will not guarantee the country’s futureinside the euro-zone. Not only is it unclear just what deal such an outcome would lead to, but weremain doubtful that Greece’s debt position is ultimately …
30th June 2015
The renewed decline in euro-zone HICP inflation in June highlighted that the ECB still has a lot of work to do to hit its inflation target in the medium term. … Euro-zone Flash CPI (Jun.) & Unemployment …
June’s sharp fall in German HICP inflation confirmed that underlying price pressures have remained very subdued even in the euro-zone’s strongest economy. … German Flash CPI …
29th June 2015
The European Commission’s monthly Business and Consumer Survey for Junesuggested that the euro-zone recovery may have gained some pace in Q2. But thesurvey was carried out before last weekend’s escalation of the Greek crisis. … EC Business & Consumer …
The Greek Government’s decision to call a referendum has elevated the crisis to a higher level. Whilea deal may yet come together, a near-term Grexit now seems more likely than not. This Updateconsiders the key questions relating to the “Greferendum” and …
The failure of Greece and its creditors to reach a deal at last week’s many meetings has left very little time before the current bailout expires on Tuesday. Saturday’s Eurogroup meeting looks pretty much like the last chance saloon if a deal is to be …
26th June 2015
May’s euro-zone monetary data were consistent with continued economic recovery.But with the probability of a Greek default and Grexit building by the day, the riskof a full-blown banking crisis in the country is growing. … Euro-zone Monetary Indicators …
There is no sign that the ECB has begun to “front-load” its asset purchases ahead of the summer lull in liquidity, despite suggestions by officials that it would do so. But the Bank will nonetheless meet its medium-term target for QE of €1.1tn. In fact, …
25th June 2015
While a deal between Greece and its creditors may finally emerge in the next few days, it still looks unlikely to include the substantial debt relief needed to end the crisis and eliminate the risk of Grexit. … Without major debt relief, a Greek deal …
24th June 2015
Although the Ifo survey points to an acceleration in Germany’s economy in Q2, its fall in June suggests that Greece’s crisis is starting to weigh on sentiment there. … German Ifo Survey …
In 2012, Capital Economics won the Wolfson Prize for our submission on how the exit from the eurozone of a small country like Greece might best be managed. Given the still significant risk that negotiations this week fail to reach a deal to keep Greece …
23rd June 2015
Amid the turmoil in Greece, June’s rise in the euro-zone PMI is encouraging. But the survey also suggests that the euro-zone recovery did not pick up much steam in Q2 and that there are clear risks to the economy ahead. … Euro-zone Flash PMIs …
Accelerating deposit outflows from Greek banks and the ECB’s reluctance to fill the gap with further emergency loans have increased the likelihood that capital controls are imminent. We discuss the options here, but they are likely to do no more than …
19th June 2015
The failure to reach a deal at last week’s Eurogroup meeting and the rapid outflow of deposits from Greek banks suggest that a near-term euro-zone exit may now be more likely than not. We do not buy the view that Greece would slip out of the euro-zone …
While Spanish exports continue to perform well, imports are also surging as domestic demand recovers. Without further competitiveness gains, Spain’s current account risks falling back into deficit. … Spain’s external adjustment has further to …
A look at Greece’s debt outlook using plausible economic assumptions underlines the inevitability of a substantial form of default, inside or outside the euro-zone. … Another scary peek at Greece’s debt …
18th June 2015
We suspect that today’s interest rate cut by the Norges Bank, from 1.25% to 1.00%, won’t be the last loosening of monetary policy this year. … Norges Bank signals a further rate cut this …
The Swiss National Bank’s decision to leave its deposit rate at -0.75% presumably reflected the franc’s stabilisation at a slightly lower level. But we expect renewed upward pressure on the currency to prompt the SNB to cut rates and intervene in foreign …
This Update takes a detailed look at the forms of debt default that Greece might employ to reduce near-term financing pressures and lower its debt burden. There are various possible options, but the scale and type of default needed to tackle Greece’s …
16th June 2015
Cyprus’ recent return to economic growth and its fairly swift liberalisation of capital controls might indicate that Greece could resolve its problems without leaving the euro-zone. However, there are some key differences which suggest that a …
June’s sharp fall in ZEW investor sentiment suggests that the German recovery is suffering from fears about the impact of the Greek crisis. … German ZEW …
Italy’s fiscal position is gradually improving. But contrary to the message from official forecasts, Italy has not yet done enough to start paying down its colossal public debt. … Italy still not ready to pay down its …
April’s euro-zone trade data suggested that the euro’s depreciation is finally starting to boost net exports. … Euro-zone Trade …
15th June 2015
Despite the benefits of a weak euro and low oil prices, the latest hard data suggest that the upturn in the euro-zone economy has not gathered further momentum in Q2. This tentatively supports survey evidence pointing to yet another 0.4% quarterly …
12th June 2015
Greece’s creditors have made it clear that the ball is firmly in its court to make the concessionsneeded to reach a last-minute agreement. But even if Greece finally blinks, the stop-gap deal that willprobably result is unlikely to bring a permanent end …
April’s weak growth in euro-zone industrial production suggested that the boost to industry from the lower oil price and euro at the start of the year may already be fizzling out. … Euro-zone Industrial Production …
The euro-zone’s fledgling economic upturn has so far been driven largely by the short-term boost to consumer spending from lower oil prices and weak inflation. If it is to be sustained, the biggest factor previously holding the recovery back – the dire …
11th June 2015
Greece’s latest proposals to its creditors reportedly include plans to cover its financing needs until March next year. But with its economic and fiscal position more likely to worsen than improve in the interim, buying time won’t make it easier to find a …
Although Sweden’s headline inflation rate nudged up in May, the big picture is that it remains very low in spite of the Riksbank’s aggressive policy easing. As such, the central bank will need to do more at its next meeting in July. … Swedish Consumer …
Whether Greece exits the euro, and whether it can leave the single currency while remaining a member of the European Union (EU), will depend on economic, market and political realities rather than legal technicalities. If these realities change, the …
10th June 2015
