Household spending to be hit by the virus

The ten-fold increase in confirmed coronavirus cases and slump in equity prices over the past week has increased the risk of a recession. We would not be surprised if the ECB issues an official statement designed to shore up confidence very soon, and the chance of a token rate cut on, or even before, 12th March has risen. Meanwhile, the key things to watch for next week are the daily virus count and financial market turbulence: the scheduled data releases will tell us little new about the impact of the virus.
Andrew Kenningham Chief Europe Economist
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European Economics Weekly

Euro-zone GDP barely grew in Q4, inflation risks rise

Data released this week suggest that our assumption that euro-zone GDP rose by 0.2% in Q4 could be too optimistic, but we still think that the economy will grow in Q1. Meanwhile, rapid house price inflation adds to the case for the ECB to, in Jay Powell’s words, start thinking about thinking about raising interest rates.

14 January 2022

European Data Response

German GDP (2021)

Provisional data showing that Germany’s GDP increased by 2.7% last year and news that it shrank in Q4 underlines that its recovery has lagged many of its peers, including the US, France and the UK. We think that German GDP will expand by less than the consensus expects this year too.

14 January 2022

European Economics Update

ECB likely to raise rates to zero in 2023

With pandemic-related inflationary pressures proving a bit more intense and persistent than we had anticipated, and policymakers sounding more willing to tighten policy, we think the ECB is most likely to end net asset purchases in December 2022 and raise its deposit rate to zero by end-2023. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

12 January 2022

More from Andrew Kenningham

European Data Response

Euro-zone Flash HICP (May) & Unemployment (Apr.)

The jump in euro-zone inflation to 2.0% in May will not be the end of the upward trend, but we expect inflation to drop back sharply next year as temporary factors are reversed.

1 June 2021

European Economics Weekly

Drop back in bond yields takes pressure off ECB

The fall in sovereign bond yields over the past week may make things a little easier for the ECB Governing Council when it meets on 10th June. We think it is likely to replace its commitment to make “significantly” higher bond purchases than in Q1 with a less specific commitment to keep financing conditions favourable. Next week we expect to learn that inflation got very close to 2% in May (data on Tuesday) while the final PMIs for May will show a big improvement in Spain and Italy (Thursday). Retail sales data for April (Friday) will probably fall in m/m terms as a lot of shops were closed in France. Finally, note that the Capital Economics London “office” will be closed on Monday.

28 May 2021

European Economics Focus

ECB climate rhetoric to run ahead of action

The ECB will make a big splash about climate change when it concludes its monetary strategy review this autumn. In practice, it is likely to make progress in addressing climate-related risks in the banking sector. The Bank may also announce some steps towards “green QE”, but that is easier said than done and comes with many risks, so we think progress will be slow. That said, the ECB’s willingness to consider a form of directed credit could be a sign of things to come.

18 May 2021
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