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.
Andrew Kenningham Chief Europe Economist
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European Economics Weekly

Rising Covid fears will keep policymakers dovish

It is too early to judge how serious the B.1.1.529 variant will turn out to be, but it certainly reinforces the case for central banks to be ultra-cautious when withdrawing their policy support. We now think that at its next meeting, the ECB will make clear that even if it intends to end net PEPP purchases in March, it stands ready to start them again if needed. That in turn should help to keep bond yields and spreads low. Meanwhile, we are braced for some “shock” inflation numbers next week, but they should mark the peak and inflation is likely to fall quite sharply next year.

26 November 2021

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

German Ifo Survey (November)

The fall in the Ifo Business Climate Index (BCI) for November was in line with expectations and suggests that the German economy was struggling even before the recent tightening of Covid restrictions. Things will be much worse in December as coronavirus restrictions are tightened further.

24 November 2021

More from Andrew Kenningham

European Economics Weekly

Surveys overstating peak price pressures

At face value the business surveys published this week suggest that euro-zone inflation may soon rise to around 4%. However, we think it is unlikely to get as high as this and, even if it does, will drop back again early next year. The run of positive economic data is set to continue next week with euro-zone retail sales and German industrial production for May, and final PMIs for June. The account of the last ECB monetary policy meeting may shed some light on the debate over when it will start to taper its asset purchases.

2 July 2021

European Data Response

Euro-zone Flash HICP (June)

After dipping below 2% in June euro-zone inflation is likely to rise again in the coming months, led by higher inflation in Germany. But we think it will drop back early next year and remain low beyond that.

30 June 2021

European Economics Update

Monetary Indicators Monitor (May)

The further slowdown in the money supply growth in May is due to big changes during the first lockdown dropping out of the annual comparison. Money supply data will be affected by the pandemic for a while, making them difficult to interpret, but the rebound in lending to the private sector in May is reassuring.

25 June 2021
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