ECB rate hikes a distant prospect, Merkel era at an end

Even as other central banks hinted this week at a shift towards tighter monetary policy, we doubt that the ECB will follow suit. Meanwhile, the business surveys suggested that while supply-chain disruptions and rising input prices took the shine off the region’s recovery in September, GDP probably still grew very strongly in Q3. Next week brings the results of Germany’s federal election on Sunday and the start of probably lengthy coalition negotiations and the usual month-end raft of data.
Jessica Hinds Europe Economist
Continue reading

More from Europe

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 Jessica Hinds

European Economics Update

Five questions and answers about Germany’s election

The federal election in Germany on Sunday will result in a new chancellor for the first time since 2005 and opinion polls suggest that the result will be extremely close with potentially months of coalition talks ahead. In this Update, we answer five key questions about the election.

23 September 2021

European Data Response

Euro-zone Flash PMIs (Sep.)

September’s PMIs suggest that the pace of recovery slowed further at the end of Q3, in part as the euro-zone economy approaches its pre-virus size but also as supply shortages continue to bite. Price pressures remain intense and sky-high energy prices suggest that these are unlikely to ease any time soon.

23 September 2021

European Economics Update

Rising gas prices will hit Spain hardest

The upward pressure on euro-zone headline inflation from the surge in natural gas prices will not be felt evenly throughout the region, with Spain looking most vulnerable. Governments are stepping in to cushion the blow, but higher energy bills are a downside risk to the euro-zone’s consumer recovery.

20 September 2021
↑ Back to top