Italian coronavirus cases increase downside risks

So far, the knock-on effects from the downturn in China on the euro-zone economy have been negligible. However, the jump in confirmed cases in Italy this weekend adds another channel through which the virus could hurt the economy. It also makes another recession in Italy more likely than not.
Jack Allen-Reynolds Senior Europe Economist
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European Economics Update

Further thoughts on Italy’s presidential vote

Italy’s presidential election, which will begin next week, threatens to reignite political uncertainty that has been quiescent since Mario Draghi became prime minister last year. While we agree that losing Mr Draghi as prime minister would put the Recovery Plan at risk, there are some reasons for comfort. Drop-In (14:00 GMT, 26th Jan): UK Outlook -- More inflation, more interest rate hikes. Join our UK Economics team for a briefing on the 2022 outlook, including why we’re below consensus on growth but think the BoE will raise rates more than most expect. Register here.

21 January 2022

European Data Response

Euro-zone Consumer Confidence (Jan.)

January’s broadly unchanged reading for consumer confidence suggests that household spending might be holding up fairly well, despite a surge in Covid cases. We expect consumption to recover quickly once the Omicron wave fades and restrictions are eased. Drop-In (14:00 GMT, 26th Jan): UK Outlook -- More inflation, more interest rate hikes. Join our UK Economics team for a briefing on the 2022 outlook, including why we’re below consensus on growth but think the BoE will raise rates more than most expect. Register here.

21 January 2022

European Economic Outlook

Inflation falling but rates may rise to zero

We expect consumption to rebound from the Omicron wave within a few weeks, lifting euro-zone GDP to its pre-pandemic level in the first half of the year. But GDP will remain below its pre-pandemic path for the foreseeable future. Meanwhile, more stable energy prices will cause headline inflation to come down sharply, but the lingering effects of the pandemic will prolong supply-chain problems and wage inflation is likely to rise. As a result core inflation will stay above the ECB’s 2% inflation target throughout 2022. And against that backdrop, the ECB will end its net asset purchases by December and prepare the ground to raise its deposit rate to zero by the end of 2023.

21 January 2022

More from Jack Allen-Reynolds

European Data Response

EC Survey (May)

As Covid restrictions continue to be lifted, it is no surprise that economic sentiment in the euro-zone improved in May. The EC survey also showed that input shortages are causing price pressures to intensify, but we still think that once these shortages ease, inflation will drop back sharply.

28 May 2021

European Economics Update

Italy Recovery Plan: Bidenomics or Marshall Plan 2.0?

Italy’s Recovery and Resilience Plan could provide a significant boost to aggregate demand in the coming years. And arguably even more important are the accompanying structural reforms, which could raise GDP in the long run. Having said that, there are a number of reasons to think that the programme will have a smaller impact than the government hopes.

26 May 2021

European Economics Focus

Inflation in euro-zone to remain lower than in US

Price pressures are building in the US and we think they will be longer-lasting than the Fed expects, but it is a very different story in the euro-zone. A weaker economic recovery and a flat Phillips curve suggest that after a brief period of above-target price rises this year, both headline and core inflation will drop back in 2022. Over the longer term, inflation is likely to trend up to 2% only very slowly.

20 May 2021
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