German Ifo Survey (July)

The small decline in the Ifo Business Climate Index in July suggests that the rebound in Germany may be losing some momentum. But Germany will still post very rapid GDP growth in both Q2 and Q3 and should regain its pre-pandemic level ahead of any other major euro-zone country.
Andrew Kenningham Chief Europe Economist
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European Economics Weekly

Energy, semi-conductors and Italy’s Green Pass

The continued high level of energy prices strengthens our view that euro-zone inflation will keep rising in the coming months. But by lowering consumers’ purchasing power, it could actually reduce inflationary pressure in the medium term. Meanwhile, data released this week added to the evidence that supply problems are weighing on German car manufacturers, and things are unlikely to get better any time soon. Finally, Italy’s new Green Pass requirement for workers came into force today, sparking protests at a number of ports. But so far the disruption seems to have been limited.

15 October 2021

European Data Response

Euro-zone Industrial Production (Aug)

The large decline in euro-zone industrial production in August was largely due to supply shortages affecting production, particularly in the German auto sector. While demand is still strong, prolonged supply shortages and high input prices suggest manufacturing will continue to struggle in Q4.

13 October 2021

European Economics Update

“Underlying inflation” still weak

Core inflation in the euro-zone rose to 1.9% in September, its highest level in nearly 13 years, but other measures of underlying inflation are much lower. This supports our view that when the temporary forces pushing up inflation have faded, the core rate will settle well below the ECB’s target.

12 October 2021

More from Andrew Kenningham

European Economics Weekly

Negative rates and QE forever?

The change in the ECB’s policy guidance, announced yesterday, strengthens our view that the Bank will leave its deposit rate unchanged at -0.5% until beyond 2025 and will continue with large-scale asset purchases for a long time yet. Meanwhile, although we don’t think the surge in virus numbers will derail the economy, it may take the shine off the recovery. Next week we expect to learn that euro-zone GDP rose by around 1.5% q/q in Q2 and that inflation edged above 2% again in July.

23 July 2021

European Economics Update

ECB reinforces commitment to keep rates low

The ECB followed through on its strategy review today by raising the bar for interest rate hikes in language which was probably a touch more dovish than expected. The Bank made no change to its guidance on asset purchases, but we think it will continue large-scale purchases for at least the next two years.

22 July 2021

European Economic Outlook

Strong rebound and temporary rise in inflation

The euro-zone is on the way to an almost full recovery. We expect Germany to regain its pre-pandemic level of activity later this year and the tourist-dependent southern countries to do so next year. The Delta variant may lead to some voluntary social distancing or self-isolating and perhaps limited restrictions over the winter, but we doubt that it will derail the recovery. Inflation will rise further than most expect in the coming months due to rising input costs and supply bottlenecks. But with wage agreements and inflation expectations remaining low, it will drop back and stay lower than most expect over the medium term. The ECB is likely to step up its standard Asset Purchase Programme substantially when its emergency purchases end next March and leave its deposit rate at -0.5% until beyond 2025, which is much later than investors expect.

16 July 2021
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