A look ahead to December’s ECB meeting

Following yesterday’s comments from ECB President Christine Lagarde, the Bank looks set to make crucial decisions about the future of QE at its December meeting. We suspect that it will end its net purchases under the PEPP next March, but increase the pace of APP purchases by more than most expect. Interest rates are also likely to remain on hold for longer than is priced into markets. Meanwhile, data from the UK suggest that Covid and shortages of both goods and labour are putting the brakes on the economic recovery there, but we remain cautiously optimistic about the euro-zone outlook.
Jack Allen-Reynolds Senior 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 Jack Allen-Reynolds

CE Spotlight

How long will pandemic price pressures last?

Global supply problems could put some further upward pressure on inflation in the near term, but the increase in inflation experienced in the immediate wake of the COVID crisis is close to peaking and we expect headline inflation to fall back in every major advanced economy in 2022. Underlying price pressures are likely to remain muted in Europe and Japan throughout this year and next. However, a combination of large amounts of fiscal and monetary support, and a longer-lasting drop in the labour force, means that core inflation in the US will remain well above target in 2022.

10 September 2021

European Data Response

Euro-zone GDP & Employment (Q2)

With revised data showing that the euro-zone economy performed even better than previously thought in Q2, the ECB is sure to revise up its GDP forecasts on Thursday. That said, even if it reduces the pace of its PEPP purchases slightly, the Bank will stress that very loose monetary policy is still required.

7 September 2021

European Economics Update

Delta variant not weighing on Italian recovery

Data released today confirmed that the Italian economy grew strongly in Q2, supporting our above-consensus forecast for the year as a whole. Timelier data suggest that concerns about the Delta variant have not crimped the services recovery, but supply chain problems could hold back Italian industry.

31 August 2021
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