Still waiting for a shot in the arm…

The euro-zone economy is doing better than many expected given that much of the hospitality and travel sector is still closed due to virus-related restrictions. Indeed, the latest business surveys suggest that manufacturing output is growing at a near-record pace. However, this rebound is from a very subdued level and the services sector is still hobbled by Covid-19 restrictions. Overall, we do not expect the euro-zone economy to expand at all in Q2. That said, despite multiple regulatory and logistical problems, the pace of vaccinations has picked up somewhat over the past month. Our best guess is that 50% of adults will have been vaccinated by the end of July. That would allow most restrictions to be lifted during the summer and would pave the way for a sustainable economic rebound.
Andrew Kenningham Chief Europe Economist
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European Economics Update

Omicron: implications for the euro-zone

It is still very early days in assessing the effects of the latest Covid variant, but we suspect that Omicron has the capacity to cause a new decline in economic activity in the coming months but that it will probably have a relatively small impact on inflation. Meanwhile, the variant means the ECB is even more likely to maintain some flexibility around its asset purchases beyond next March.

29 November 2021

European Data Response

Germany Flash Inflation (Nov.)

The increase in German inflation to 6% on the HICP measure was partly due to statistical quirks which should be reversed next month. But even the national CPI measure of inflation rose to 5.2%. However it is measured, inflation has now probably peaked and should fall back a long way next year.

29 November 2021

European Data Response

EC Survey (November)

Despite the slight deterioration on the month, November’s EC business and consumer survey showed that economic sentiment in the euro-zone was high before the recent news about the Omicron variant. It also confirmed that consumers’ and firms’ inflation expectations were extremely strong.

29 November 2021

More from Andrew Kenningham

European Economics Update

ECB’s new target marks death of Bundesbank tradition

If confirmed, the ECB’s decision to adopt a 2% inflation target and allow room to overshoot it if needed would mark a historic shift towards the mainstream for the ECB. It would have no immediate implications for monetary policy, but in the longer run may imply policy would be looser for longer.

8 July 2021

European Chart Book

Activity taking off as hospitality reopens

The economy has continued to rebound strongly as governments have lifted almost all restrictions on retail and restaurants and eased rules on foreign travel. Restaurant bookings are back above pre-pandemic levels and the number of flights is rising steeply (no pun intended!). This rebound is likely to put a bit more pressure on inflation, which looks set to resume its upward course in the second half of the year after pausing in June. The latest statements from key policymakers suggest that the ECB is in no hurry to scale back its asset purchases, but we think the Governing Council will begin to taper its bond-buying in the coming months.

7 July 2021

European Data Response

German Industrial Production (May)

The small decline in German industrial production in May, which left it well below its pre-pandemic level, was due to another big fall in vehicle production. The problems in that, admittedly important, sector are likely to be resolved only gradually, but otherwise the German economy is recovering strongly.

7 July 2021
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