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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 …
24th June 2015
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
Iceland’s central bank raised its main interest rates by 50bp today, as expected, in what looks likely to be the beginning of a tightening cycle designed to counter strong domestic demand growth and building inflationary pressures. … Iceland’s …
The falls in French and Italian industrial production in April suggest that euro-zone industry will be a weaker driver of GDP growth in Q2. … French & Italian Industrial Production …
Iceland’s central bank raised its main interest rates by 50bp today, as expected, in what looks likely to be the beginning of a tightening cycle designed to counter strong domestic demand growth and building inflationary pressures. … Iceland’s Sedlabanki …
The second estimate and breakdown of euro-zone GDP in Q1 confirmed that growth in the early months of the year was driven by domestic demand, presumably partly reflecting the positive effects of lower oil prices and inflation. But these effects could fade …
9th June 2015
Although Iceland’s economy contracted in Q1, the continued strength of domestic demand means that the central bank is still likely to start raising interest rates at tomorrow’s policy meeting. … Iceland GDP …
The repeated failure to agree on austerity measures together with threats of default and the prospect of IOUs have prompted comparisons between Greece’s situation and that in California in 2009. But Greece’s problems are far larger, a solution will be …
Although Iceland’s economy contracted in Q1, the continued strength of domestic demand means that the central bank is still likely to start raising interest rates at tomorrow’s policy meeting. … Iceland GDP (Q1 …
The Icelandic Government today presented its long-awaited plan to lift its capital controls after more than six years. While a detailed programme for their removal is a welcome step, the controversial “stability tax” may be challenged in the courts, …
8th June 2015
Greece and its creditors appear to be inching slowly towards each other on some elements of a potential deal to complete the current bailout. But deciding on and implementing the debt relief clearly needed by Greece is likely to remain a hugely …
Spain has benefitted from a trio of temporary tailwinds over the last year: the weaker euro, falling oil prices and a pause in fiscal austerity. So official forecasts may be wrong to assume that the economy can maintain its recent blistering pace of …
After a disappointing start to the year, April’s German industrial production and trade data both suggested that the economy will pick up steam in Q2. … German Industrial Production & Trade …
Denmark’s forthcoming general election appears to be an increasingly close contest. But the consensus between the two major parties on many issues means that the result is unlikely to alter the economic and fiscal outlook to any meaningful extent. … …
5th June 2015
Greece’s decision to emulate Zambia and bundle its June IMF payments has allowed another “make or break” moment to pass without either. But the continued divergences between the country and its creditors have left it very close to the brink. For now we …
Greece’s new plan for “debt management and investment-led growth” is a much-needed attempt to look beyond the completion of the current bailout and find a more permanent resolution to the crisis. But it still relies on over-optimistic growth projections …
The focus on the precise targets for the primary budget surplus in the negotiations between Greece and its creditors overlooks the fact that, unless the economy experiences a miracle, its debt ratio is simply unsustainable without a major write-down. … …
4th June 2015
Italy’s economy looks set to grow again in Q2. But households there will remain under enormous pressure for the foreseeable future, which has implications for the strength of the recovery and support for PM Matteo Renzi’s reform programme. … Italian …
Q1 GDP data confirmed that Finland’s economy is still in the doldrums. While we think that growth will pick up later in the year, Finland is likely to be among the euro-zone’s weakest economies in 2015. … Finland GDP …
Q1 GDP data confirmed that Finland’s economy is still in the doldrums. While we think that growth will pick up later in the year, Finland is likely to be among the euro-zone’s weakest economies in 2015. … Finland GDP (Q1 …
The depreciation of the euro over the past year or so appears to be finally starting to help euro-zone exporters. The latest data show that annual growth in euro-zone export values picked up to 7.3% in March, the fastest pace since late 2012. The …
3rd June 2015
ECB President Mario Draghi gave a dovish message today that the Governing Council remains cautious over the strength of the euro-zone economic recovery and intends to implement its quantitative easing programme in full or extend it. … Draghi sends …
The latest euro-zone unemployment and retail sales data point to a further gradual improvement for consumers at the start of Q2, indicating that household spending is likely to remain a key driver of the region’s economic recovery. … Euro-zone …
The mooted reallocation of unused banking bailout funds could boost the amount of cash provided to Greece in a forthcoming deal with its creditors and hence buy it some valuable additional time. But it would not make up for the probable lack of any …
The latest euro-zone fiscal data showed that most of the peripheral countries made fiscal progress at the start of Q2, after a mixed performance in Q1. But Greece’s position is still looking precarious. … Euro-zone Fiscal Monitor …
2nd June 2015
May’s rise in euro-zone HICP inflation will offer some relief to the ECB, but with underlying price pressures still very weak and the recovery seemingly slowing, strong monetary policy support will be needed for the foreseeable future. … Euro-zone Flash …
