German Ifo Survey (January)

The increase in the Ifo Business Climate Index (BCI) in January provides more evidence that, after contracting in late 2021, conditions have stabilised at the start of the year. With disruption from the Omicron wave likely to ease in the coming weeks, we think German GDP will increase in Q1. Euro-zone Drop-In: Why the ECB will be laying the groundwork for rate hikes in 2023. Join Andrew Kenningham and the Europe team for a discussion about their Q1 euro-zone Economic Outlook report on Tuesday, 1 Feb at 09:00 EST/14:00 GMT. Registration here.

25 January 2022

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

German Inflation (December)

Final inflation data for December showed that the decline in Germany’s HICP inflation rate to 5.7% was due to energy and services. We expect both headline and core inflation to fall this year, but only to around 2.5% on the headline measure by December, which is above the Bundesbank’s comfort zone.

19 January 2022
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ECB rate hike unlikely to move the needle for property

While we now expect the ECB to start its tightening cycle earlier, we don’t think the change is significant enough to prevent further property yield compression over 2022-23, albeit at a slower pace than in 2021.

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.

German Industrial Production (November)

The unexpected decline in German industrial production in November increases the chance that GDP fell in the last quarter of 2021. And with the Omicron variant likely to hit Germany hard in the coming weeks, the outlook for Q1 is also looking poor.

Germany Flash Inflation (December)

Germany’s HICP inflation rate fell to 5.7% in December and is now past its peak, but the national CPI measure, which is arguably a better indicator at the moment, rose slightly. Looking ahead, we expect Germany’s inflation rate to fall further this year, but to remain uncomfortably far above 2%.

ECB slightly more hawkish than expected

Following a the ECB’s slightly hawkish policy shift this week, we have penciled in a rate hike for 2024 and think the chance of a 2023 lift-off has risen. The big picture, though, is that the ECB will stick to negative rates for a long while yet and that the ECB’s policy will diverge sharply from that of the Fed next year. Meanwhile, although we wish all our clients a happy holiday period, it looks as if the coronavirus will once again dampen festive spirits as well as retail and hospitality spending... – This will be the last Economics Weekly for 2021. The next Weekly will be sent on Friday 7th Jan. 2022 –

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