German Industrial Production (July)

The small increase in German industrial production in July merely reversed the fall in June, and left output well below normal. While the rest of the economy is now close to a full recovery, supply chain problems among manufacturing companies will keep GDP below its pre-pandemic level until Q4 at the earliest.
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 Chart Book

Rise in inflation is not over

Headline inflation came in higher than our above-consensus forecast in August and, at 3.0%, reached its highest level for a decade. It is likely to rise a bit further in the coming months: producer price inflation has risen recently and the price components of surveys such as the PMIs show that price pressures are still strong. However, we think inflation will drop even further than the consensus and ECB expects over the next two years. This is largely because we expect wage inflation to remain low, given that there is more slack in the labour market than before the pandemic and that the Phillips curve is flat. Although there are some signs that the recovery is losing momentum, this is inevitable as activity gets close to its pre-pandemic level. Against this backdrop we think the ECB is likely to dial down its emergency asset purchases slightly on Thursday and end them completely next March, but continue with its standard asset purchase programme for several years and leave the deposit rate unchanged for the foreseeable future.

6 September 2021

European Economics Weekly

Inflation to rise further, but then fall

Inflation will rise further from the 3% level reached in August in the coming months, but we are confident that it will drop back sharply next year, as most measures of underlying inflation and wage pressures remain very low. Meanwhile, all eyes will be on the ECB Governing Council meeting next Thursday, when we expect policymakers to announce the start of a very gradual reduction in the Bank’s asset purchases.

3 September 2021

ECB Watch

Slower purchase pace in sight, but rate hikes are not

The ECB is likely to use next week’s meeting to prepare the ground for a very gradual reduction in asset purchases under the emergency PEPP. But, taking a leaf out of the Fed’s book, it will stress that this does not mean that rate hikes are getting closer, or even that policy is being tightened. Looking ahead, we think the ECB is most likely to end its PEPP purchases by next March but simultaneously step up its APP purchases. And it will leave its deposit rate unchanged until beyond 2025.

2 September 2021
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