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End of negative rates is nigh!

The account of the ECB’s April meeting shows that a lot of policymakers thought the criteria for rate hikes had already been met. Since then, the case for rate hikes has only strengthened. While not our central forecast, a 50bp hike in July is increasingly likely, and even a June hike is not out of the question.
Andrew Kenningham Chief Europe Economist
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European Data Response

Euro-zone Unemployment (May)

The fall in the euro-zone unemployment rate in May to a new record low reaffirms the strength of the region’s labour market despite the apparent softening of activity. That will underpin an acceleration in wage growth this year, adding to inflationary pressure.

30 June 2022

European Data Response

Germany and Spain Flash Inflation (Jun.)

The fall in inflation in Germany and the increase in Spain in June largely reflect temporary factors and will not alter the consensus view at the ECB that interest rates need to be increased quite rapidly.

29 June 2022

European Data Response

EC Survey (June)

The decline in EC Economic Sentiment Indicator in June was not as bad as we had feared and paints a more upbeat picture than the PMIs published last week. Nevertheless, the survey also pointed to inflationary pressures remaining strong, which is likely to weigh on demand and sentiment further ahead.

29 June 2022

More from Andrew Kenningham

European Data Response

German Industrial Production (March)

The slump in output in March shows that the war in Ukraine is hitting manufacturers hard even before a ban on Russian energy imports has taken effect and before the ECB has raised interest rates. We think this is the start of a deep manufacturing downturn which is likely to drag the entire economy into recession.  

6 May 2022

European Chart Book

Inflation becoming more entrenched

The latest data suggest that the increase in inflation is becoming more broad-based and persistent. While headline inflation only edged up in April, the core measure jumped to 3.5%. A range of alternative measures of underlying inflation, including our own proprietary indicator, also rose sharply. Surveys suggest that businesses and households have been revising up their inflation expectations, and this is echoed in market-based measures of inflation expectations. All of this has prompted financial markets to come round to our view that the ECB will raise its deposit rate by 25bps in July and lift it to positive territory by the end of the year. We now see the risks to our forecast as tilted to the upside. Attention is soon likely to turn to how tighter monetary conditions will impact the real economy and whether they will cause an excessive widening of sovereign bond spreads. UK Drop-In (5th May 10:30 EDT/15:30 BST): Our UK Economics team are holding a special 20-minute briefing to discuss the latest MPC decision and what it means for their outlook for UK growth, inflation and BoE policy. Register now

5 May 2022

European Economics Update

ECB may need more than promises to contain spreads

The prospect of tighter monetary policy in the euro-zone has raised the threat of a bigger sell-off in the region’s bond markets. If this happens, we think the ECB would ultimately intervene to prevent any lasting damage. But we doubt that it will agree the details of a new QE programme until it is urgently needed and, as a result, we think the euro-zone bond market is vulnerable to a sharp sell-off.

4 May 2022
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