Fiscal costs of virus could easily top 10-15% of GDP

The combination of the government responses to the coronavirus and the slump in economic activity will cause euro-zone budget balances to deteriorate by at least 10-15% of GDP this year. While this may be manageable for most countries so long as government borrowing costs stay low, the scale of support required is already putting a new question mark over the sustainability of Italy’s debt.
David Oxley Senior Europe Economist
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European Economics Update

Rising house prices strengthen ECB hawks’ case

Euro-zone inflation would be even further above target if owner-occupied housing costs were included in the region’s headline measure. Their formal inclusion won’t take place for a few years yet, but the ECB has pledged to take them into account in the meantime. On balance, this points to slightly tighter policy. 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

European Data Response

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

European Data Response

Euro-zone Flash PMIs (Jan.)

The small decline in the Composite PMI in January confirms that Omicron has taken a toll on the services sector, though Germany performed surprisingly well. We think governments will ease restrictions sufficiently in February and March to allow euro-zone GDP to increase by around 0.5% in Q1.

24 January 2022

More from David Oxley

Nordic & Swiss Economics Update

Putting the Norges Bank’s looming hikes into context

A rate hike by the Norges Bank in September would make it the first G10 central bank to start to raise interest rates after the pandemic, by a comfortable margin. As a result, the NOK is likely to gain ground on the euro and the SEK by the end of the year.

15 June 2021

Nordic & Swiss Central Bank Watch

Two banks, heading in different directions

We expect both the Swiss National Bank and Norges Bank to leave interest rates on hold next Thursday. But while rate hikes by the SNB are many years away, a tightening cycle in Norway is edging closer.

11 June 2021

Nordic & Swiss Economics Weekly

Riksbank not marvelling at proposed Act changes

While many of the changes in the new proposed Riksbank Act are benign, the Bank argues with some merit that the new legislation would make it more difficult for it to use its balance sheet during times of crisis. All told, the changes will make the Bank more reliant on the repo rate in the future, which could make a return to negative rates more likely at some point. Next week, consumer price inflation data from May are likely to show that headline inflation slowed in both Norway and Sweden, but rose in Switzerland. Meanwhile, the Norwegian economy probably flat-lined in April, but the easing of restrictions means that May should be a lot better.

4 June 2021
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