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Our concerns that the markets have been under-estimating the challenge faced by the new Syriza-led Greek Government and the Troika in trying to reach a mutually acceptable solution to Greece’s debt problems were at least partly borne out last week. Not …
30th January 2015
January’s drop in core euro-zone inflation to a record low brought further confirmation that deflationary pressures in the currency union go well beyond the effect of falling oil and energy prices. … Euro-zone Flash CPI (Jan.) & Unemployment …
While Spain’s economy continued to grow solidly in Q4 last year, deepening deflation pressures threaten to de-rail the recovery. … Spanish GDP (Q4 …
January’s drop in German HICP inflation well into negative territory highlights the strength of deflationary pressures in even the euro-zone’s strongest economies. While falls in prices should prove temporary in Germany, there are downside risks. And the …
29th January 2015
January’s small rise in the EC Economic Sentiment Indicator (ESI) did little to change the picture of very subdued growth in the euro-zone at the start of this year. … Euro-zone EC Survey …
December’s euro-zone monetary data showed that credit conditions continued to improve at the end of last year. But the recovery is still at an early stage, highlighting the need for the ECB’s latest policy support. … Euro-zone Monetary Indicators …
Expectations that Greece’s fiscal problems can be addressed by a “restructuring” of its debts overlook the fact that most of the viable adjustments have already been made. Only a substantial write-down will materially alter Greece’s debt trajectory – an …
28th January 2015
Syriza’s victory in the Greek general election may increase the influence of anti-austerity parties elsewhere in the euro-zone, most notably Podemos in Spain. But resistance from Germany seems set to limit European authorities’ ability to loosen fiscal …
27th January 2015
January’s rise in the German Ifo index suggests that fears about the effect of the Greek crisis on the German economy have so far been offset by the perceived benefits of a weaker euro and ECB quantitative easing. … German Ifo Survey …
26th January 2015
Syriza’s resounding victory in the Greek general election looks set to result in a protracted period of heightened uncertainty over Greece’s future inside the euro-zone and could threaten to reignite a broader crisis across the currency union. … Syriza …
In this Update , we outline some of the key points to look for in this Sunday’s crucial Greek election. While much is likely to depend on coalition negotiations early next week, we suspect that the process will reveal a greater risk of Greek default and …
23rd January 2015
The ECB’s Governing Council deserves credit for meeting the demandingly high level of expectations with last week’s announcement of a quantitative easing programme worth at least €1trn. The size and open-endedness of the programme appears to have trumped …
January’s small rise in the euro-zone composite PMI suggested that growth has remained very slow at the start of this year, confirming that the ECB’s latest policy support is sorely needed. … Euro-zone Flash PMIs …
The ECB’s much-anticipated quantitative easing programme appears to have met or even exceeded expectations in terms of size and shape. But we remain sceptical that it will revive the euro-zone economy or prevent an extended bout of deflation. … QE meets …
22nd January 2015
It would be one of the biggest shocks in recent monetary policy history if the European Central Bank (ECB) did not announce some form of quantitative easing (QE) today. But will it live up to expectations? This note outlines the key points to look for in …
The viability of Denmark’s currency peg with the euro has been called into question following the Swiss National Bank’s decision to abandon its exchange rate ceiling. We think that the Danish peg will ultimately hold but that the Danish Nationalbank will …
21st January 2015
The proposed plan for national central banks to implement quantitative easing for the ECB has the benefit that these banks are best-placed to design an effective policy for their own economies. But the likelihood that they will conduct the policy at their …
The onset of deflation in the euro-zone and the recent developments in Greece have served as powerful reminders of the lasting effects of the region’s debt crisis. The ECB will seek to tackle deflation with additional monetary stimulus in the form of …
20th January 2015
January’s rise in ZEW investor sentiment showed that confidence in the German economy was holding up well despite fears for Greece. But investors may take a dimmer view following this week’s Greek election or if the ECB disappoints. … German ZEW & …
The sharp appreciation of the franc caused by the Swiss National Bank’s abandonment of its currency ceiling last week led to a substantial drop in the domestic value of the SNB’s foreign currency investments. The Government should be able to recapitalise …
16th January 2015
It is virtually certain that the ECB will announce some form of quantitative easing (QE) at its Governing Council meeting on January 22nd. But given the ECB’s natural caution and Germany’s objections, we’re not very confident that the programme will be …
15th January 2015
The Swiss National Bank’s (SNB) shock decision to abandon its ceiling for the franc reflected its judgement that the policy was just not sustainable. Unless it can reverse the franc’s appreciation with other policies, the downward impact on growth and …
The widening of the euro-zone trade surplus in November to another record high encouragingly reflected a small rise in exports rather than the weakness of imports, suggesting that exporters are starting to feel the benefits of the euro’s depreciation. … …
The small increase in euro-zone industrial production in November suggests that industry may well have fared better in Q4. But it does little to alter the picture of widespread weakness in the region at the end of 2014. … Euro-zone Industrial Production …
14th January 2015
The fall in Sweden’s headline inflation rate in December was smaller than expected but it is unlikely to alleviate the pressure on the Riksbank to take bolder action to boost inflation. … Swedish CPI …
13th January 2015
The fall in Sweden’s headline inflation rate in December was smaller than expected but it is unlikely to alleviate the pressure on the Riksbank to take bolder action to boost inflation. … Swedish CPI (Dec. …
The recent sharp drop in both the price of crude oil and the value of the euro should have some positive effect on euro-zone economic output. We think that, on balance, the peripheral countries should benefit more than the region’s core. But the threat of …
12th January 2015
Data last week, including the drop in HICP inflation to -0.2%, heightened the risk of a prolonged bout of deflation in the single currency area. But on the face of it at least, the escalating political crisis in Greece and the forthcoming ruling by the …
9th January 2015
November’s country data on industrial production and trade suggest that the euro-zone’s major economies have continued to stagnate at best, increasing the threat of a prolonged bout of deflation in the currency union. … German, French and Spanish …
The euro-zone is back in deflation just over five years since the end of the last period of falling prices seen in 2009. But unlike that last bout, which lasted just five months, deflation looks set to last longer this time. Unless oil prices rebound, …
8th January 2015
The absence of such intense market pressures suggests that the probability of an imminent Greek exit from the euro-zone is lower than it was in 2011 and 2012. But should market pressures reintensify , a Grexit may now be a more viable prospect for both …
December’s EC business and consumer survey did little to alter the picture of weak euro-zone GDP growth at the end of 2014 and suggested that renewed concerns about Greece and Russia offset the perceived benefits of the drop in the oil price. … …
All peripheral economies narrowed their budget deficits in November, but fiscal consolidation is doing little to tackle debt ratios in some countries and they may only get worse if the euro-zone experiences a prolonged period of deflation. … Euro-zone …
7th January 2015
A bout of negative inflation could have some positive effects on the euro-zone economy by boosting real incomes and spending power. But the adverse effects on inflation expectations and peripheral countries’ debt consolidation efforts are potentially …
December’s sharp drop in euro-zone inflation into negative territory could herald the start of a prolonged and damaging bout of deflation in the currency union, which may in turn threaten to re-ignite the region’s debt crisis. … Euro-zone Flash CPI …
Recent strong downward pressure on the euro exchange rate might ease in the very near term. But further ahead, poor euro-zone growth, the implementation of quantitative easing and fears for the region’s indebted economies suggest that the currency is set …
6th January 2015
The downward revision to December’s euro-zone PMI added to signs that the economy is barely expanding. And with the price indices highlighting the threat of deflation, the ECB remains under intense pressure to increase its support. … Euro-zone Final …
There is growing evidence that, even before the latest drop in oil prices, the US shale oil revolution had started to weigh on oil producers in Latin America. Oil exports to the US from three of the region’s major oil producers (Venezuela, Mexico and …
5th January 2015
The idea that the ECB should finance a euro-zone investment fund instead of buying assets through a conventional quantitative easing programme has several potential benefits. But the scheme probably puts too much faith in public institutions to choose and …
23rd December 2014
The euro-zone economy behaved largely as we anticipated in 2014, with growth remaining distinctly sluggish, inflation falling, the ECB forced into more policy action and the euro weakening. The biggest surprise, perhaps, was the extent to which the bond …
19th December 2014
December’s German Ifo survey provided some comfort that recent overseas events have not yet hit the economy, but remains consistent with only weak rates of expansion. … German Ifo Survey …
18th December 2014
The euro-zone’s direct trade and financial links with Russia are relatively weak. Nonetheless, even a modest negative impact at a time when the region is already facing renewed internal problems could be enough to push the currency union back into …
17th December 2014
An ECB quantitative easing (QE) programme appears unlikely to be big enough to push the euro down sharply. But the prospect of continued stagnation in the economy and impending monetary tightening overseas should nonetheless see the single currency weaken …
16th December 2014
December’s sharp rise in German ZEW investor sentiment is an encouraging sign that confidence has so far not been hit by renewed problems in Greece, but the improvement is at odds with the weakness of the more reliable PMI. … German ZEW Survey (Dec.) & …
Sweden’s central bank today pushed back the date at which it expects to raise its policy rate from zero and revealed that it was preparing unconventional measures to make policy even more expansionary. We think that these may well include a programme of …
December’s flash euro-zone PMI survey suggested that the euro-zone economy probably lost steam in the fourth quarter and maintained the pressure on the ECB to deliver a major policy boost at its next policy meeting in January. … Euro-zone Flash PMIs …
