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.
Jack Allen-Reynolds Senior Europe Economist
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European Economics Weekly

Euro-zone GDP barely grew in Q4, inflation risks rise

Data released this week suggest that our assumption that euro-zone GDP rose by 0.2% in Q4 could be too optimistic, but we still think that the economy will grow in Q1. Meanwhile, rapid house price inflation adds to the case for the ECB to, in Jay Powell’s words, start thinking about thinking about raising interest rates.

14 January 2022

European Data Response

German GDP (2021)

Provisional data showing that Germany’s GDP increased by 2.7% last year and news that it shrank in Q4 underlines that its recovery has lagged many of its peers, including the US, France and the UK. We think that German GDP will expand by less than the consensus expects this year too.

14 January 2022

European Economics Update

ECB likely to raise rates to zero in 2023

With pandemic-related inflationary pressures proving a bit more intense and persistent than we had anticipated, and policymakers sounding more willing to tighten policy, we think the ECB is most likely to end net asset purchases in December 2022 and raise its deposit rate to zero by end-2023. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

12 January 2022

More from Jack Allen-Reynolds

European Economics Update

PEPP not guaranteed to end in March

The account of October’s ECB meeting suggests that it is by no means guaranteed that net PEPP purchases will end in March. And even if they do, the Bank may well leave open the possibility of re-starting PEPP purchases later in 2022 if needed. Meanwhile, we agree with the ECB’s message that investors have got ahead of themselves by pricing in interest rates hikes for next year.

25 November 2021

European Data Response

Euro-zone Final HICP (Oct.)

October’s euro-zone inflation data confirm that core price pressures are weaker than in other advanced economies. That said, we think headline inflation will remain above 2% until late 2022.

17 November 2021

European Economics Focus

ECB will persist with QE and negative rates for years

We expect the ECB to interpret a period of above-target inflation as “transient” even if it lasts for well over a year. Although it will end its emergency PEPP programme next March, the Bank will step up the pace of its conventional asset purchases, most likely from €20bn to €40bn per month, and leave its key policy rate unchanged at -0.5% until around 2025. It is also possible that the Bank establishes a “backstop fund” to be used in the event of an exceptional widening of credit spreads. All in all, our forecasts suggest that policy will remain very loose for longer than the markets currently anticipate, and this in turn should help the ECB to keep a lid on both core and peripheral sovereign bond yields.

15 November 2021
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