Europe

Euro-zone

Reopening effects to persist in Q3

The surge in German inflation, to 3.8% on the national CPI measure in July, may have got some pulses racing in Frankfurt, but core euro-zone inflation remains very low and we continue to think that the ECB will struggle with excessively low inflation over the medium term. Next week we expect to learn that euro-zone retail sales rose again in June and the Composite PMIs for Spain and Italy increased in July.
 

30 July 2021

Euro-zone GDP and Employment (Q2)

After increasing more than expected in Q2, thanks to strong growth in the southern economies, euro-zone GDP should expand rapidly again in Q3 as core economies close in on their pandemic levels. China slowdown webinar: Join us on Thursday, 5th August for a special webinar assessing the impact of China’s economic slowdown on the global recovery. Neil Shearing will lead a discussion with economists from across our economics and markets services to assess whether investors should brace for fresh volatility with China poised for a structural deceleration. Register here for sessions at 0900 BST/1600 HKT or 1100 ET/1600 BST.  

30 July 2021

Euro-zone Flash HICP (July)

Euro-zone inflation resumed its upward trend in July and we expect it to rise further in the remainder of the year. But this is largely due to temporary factors, which should fade in 2022.

30 July 2021
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Germany Flash Inflation (July)

The increase in German inflation to nearly 4% on the CPI measure was partly due to last year’s VAT cut and partly due to rising energy and food inflation, all of which should prove short-lived. Inflation is likely to drop back sharply early next year and to settle below 2% over the medium term.

EC Survey (July)

Economic sentiment in the euro-zone continued to improve in July as restrictions were lifted further. The EC Survey also showed that persistent input shortages are causing price pressures to grow across all sectors. That said, we expect inflation to fall back sharply once these shortages dissipate.

Inflation won’t surge in the euro-zone like in the US

We think that euro-zone headline inflation will rise further than most expect in the second half of this year. But rather than reaching the levels of around 5% seen in the US, it is likely to top out at about 3% before falling back sharply in 2022.

German Ifo Survey (July)

The small decline in the Ifo Business Climate Index in July suggests that the rebound in Germany may be losing some momentum. But Germany will still post very rapid GDP growth in both Q2 and Q3 and should regain its pre-pandemic level ahead of any other major euro-zone country.

We expect E-Z “peripheral” spreads to remain low

While we no longer expect peripheral spreads to narrow this year, we still think that they will remain close to their current levels, which are close to the lowest since the Global Financial Crisis.

23 July 2021
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