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Recent events have underlined our view that the Slovenian government will struggle to finance itself this year despite the small size (relative to GDP) of its troubled banks and public debt. To avoid a bail-out, the government will need rapidly to put in …
15th April 2013
The drop in peripheral euro-zone bond yields following the Bank of Japan’s announcement that it is set to expand its quantitative easing programme dramatically has further relieved the near-term pressure on the ECB to implement its own Outright Monetary …
The small rise in euro-zone industrial production in February suggests that the sector will avoid another steep fall in output in Q1. But there is still no sign that the sector is about to spearhead an economic recovery. … Euro-zone Industrial Production …
12th April 2013
The dramatic increase in the size of the proposed rescue package for Cyprus both underlines the depth of the problems facing the country and poses further questions over the likely impact of future euro-zone bail-outs on both depositors and bondholders. …
11th April 2013
Recent events in Italy, Cyprus and Portugal have put a dent in hopes that the three-year crisis in the euro-zone is finally drawing to a close. Meanwhile, previous tentative signs that the broader economy might be recovering in response to the period of …
10th April 2013
Recent news from Greece has provided tentative signs that the economic situation there is improving. But we still think that the economy will remain in recession for longer than the Troika expects and that another debt restructuring will be needed to …
February’s German industrial production figures suggest that the economy’s engine of growth is still just about ticking over, but only very slowly. … German Industrial Production (Feb. …
8th April 2013
Despite ECB President Mario Draghi’s assurance last week that the Bank “stands ready to act”, he gave very little indication of what support it might offer. An imminent interest rate cut is possible, but we do not see it as a done deal and fear that it …
After leaving interest rates on hold today, ECB President Draghi acknowledged the downturn in the economic outlook and stated that the Bank stood ready to act in future. However, he provided little hope that policies considered to be within the Bank’s …
4th April 2013
Slovenia is indeed different from Cyprus, as its government has been at pains to point out, but the country may nonetheless struggle to overcome its banking crisis without outside help. That said, any Slovenian bail-out would be unlikely to shake the …
Recent activity indicators suggest that the euro-zone economy had started to lose some of its momentum even before the recent escalation of the crisis in Cyprus. Admittedly, most survey indicators are still stronger than they were a few months ago and …
3rd April 2013
While headline euro-zone inflation fell again in March, there were some signs of a rise in core price pressures. But these are likely to prove temporary. … Euro-zone Flash CPI (Mar. …
The recent news from Italy suggests that it could still be some time before a new government is in place. While there is little sign, for now at least, that this has damaged business and consumer sentiment, we expect Italy to remain deep in recession for …
2nd April 2013
The further rise in euro-zone unemployment in February, coupled with the low level of March’s manufacturing PMI, confirmed the underlying weakness of the economy. … Euro-zone Unemployment (Feb.) & Manufacturing PMI …
The relative calmness of the financial markets during the Cyprus episode and after the Italian election might be seen as an indication that the worst of the euro-zone crisis is now behind us. But it is the behaviour of bank deposits in Cyprus and …
1st April 2013
The crisis in Cyprus, together with the continued deterioration in indicators of euro-zone economic activity, should lead the ECB to strike a more supportive tone at this month’s press conference. But while an interest rate cut is possible, we suspect …
28th March 2013
The latest euro-zone monetary data showed more mixed developments in financial markets than in previous months. And there is still limited evidence of a pick-up in credit to the private sector. … Euro-zone Monetary Indicators Monitor (Feb. …
February’s German retail sales data suggest that spending rose in Q1. But sales are still falling compared to a year earlier and with March’s unemployment data confirming that the labour market recovery is fading, a strong consumer recovery seems too much …
Swiss GDP data for Q4 confirmed that, while growth is clearly slowing, the economy has continued to outperform most others in Europe. But we expect the economy to stagnate this year as problems in the euro-zone cause exports to fall. … Swiss GDP (Q4 …
Italy and Spain missed their 2012 deficit targets by a small margin and timelier data point to further likely slippage in the initial stages of this year. … Euro-zone Fiscal Monitor …
27th March 2013
Cyprus has shown that even the smallest members of the euro-zone can rock the single currency area. Slovenia is probably the next country most likely to be forced into a bailout programme, but Malta and Luxembourg are also vulnerable given the size of …
March’s fall in the euro-zone EC Economic Sentiment Indicator (ESI) provides a further sign that the euro-zone economy had started to lose momentum even before the recent escalation of the crisis in Cyprus. … Euro-zone EC Survey (Mar. …
While capital controls could be crucial to preventing the collapse of the Cypriot banking system in the coming weeks, their persistence or more widespread use would threaten to undermine the basic functioning of the currency union. … Capital controls: …
26th March 2013
While the Cypriot banking package has averted imminent disaster, the episode will have damaging effects on Cyprus’s economy and has raised new questions over the stability of the currency union. … Cyprus: Disaster averted, but with lasting …
25th March 2013
While the successful formulation of a new plan to avoid bankruptcy in Cyprus remains in the balance, it looks likely that some form of package will be put together in order to ensure the continued support of the ECB for the country’s banks and hence avoid …
March’s fall in the German Ifo business climate indicator is another sign that the recovery in the euro-zone seen over the past six months or so might already be running out of steam. … German Ifo Survey …
22nd March 2013
While Ireland impressively matched Germany’s economic expansion in 2012, the recent slowdown in the quarterly path of GDP is a reminder that the country still faces major challenges. … Ireland GDP …
21st March 2013
The fall in the composite euro-zone PMI in March suggests that even before the recent uncertainty surrounding Cyprus’ future, the euro-zone economy had begun to contract more sharply. … Euro-zone Flash PMIs …
The Cypriot Parliament’s overwhelming rejection of the proposed levy on bank deposits adds to the uncertainty surrounding the future of Cyprus and increases the risk of the country eventually exiting the single currency. … What next for …
20th March 2013
March’s small rise in the German ZEW index left it at a high level. But as fears for Italy and Cyprus hit sentiment in future, we doubt that Germany’s recovery will be as strong as the survey now suggests. Meanwhile, January’s rise in Italian industrial …
19th March 2013
The plan to impose losses on Cypriot bank depositors has potentially serious implications for financial stability in the euro-zone as a whole. Cyprus is arguably a special case, but given remaining risks elsewhere in the euro-zone, depositors might not be …
18th March 2013
Last week brought mixed news in the debate on growth versus austerity. On the one hand, EU leaders discussed and (to some extent) advocated growth policies at an EU summit. What’s more, the European Commission seemed likely to accept that France would …
The latest figures on consumer prices and labour costs in the euro-zone emphasised that the inflation outlook presents no obstacles to the provision of further policy support from the ECB. … Euro-zone Final CPI (Feb.) & Labour Costs …
15th March 2013
The opening of Parliament on Friday will do little to lift the political uncertainty in Italy. Accordingly, a prolonged period of policy deadlock looks likely to fuel concerns over the outlook for Italy’s economy and public finances. … Italian deadlock …
14th March 2013
The Norges Bank’s decision to leave the policy rate unchanged reflects the dilemma facing the Bank as a strong currency prevents it from hiking rates to stem a housing boom. These countervailing pressures are likely to keep policy on hold until late-2014 …
The Swiss National Bank pledged to maintain its extremely supportive policy stance today, keeping interest rates as close to zero as possible and defending its exchange rate ceiling. But even at the current level, the franc is much too high for exporters’ …
Reviving lending to small and medium-sized enterprises is crucial for the euro-zone’s prospects given the importance of these firms to the region, particularly in the periphery. Indeed, ECB President Mario Draghi has repeatedly singled out the need to …
13th March 2013
Despite concerns that austerity is not working in the euro-zone, most of the region’s peripheral economies managed to reduce their budget deficits in 2012. But fiscal progress has been slower than expected and the economic costs have been considerably …
January’s fall in euro-zone industrial production is a timely reminder that, despite the improvement in business and financial market sentiment, the region is likely to have remained in recession in Q1 … Euro-zone Industrial Production …
We are not fully convinced by the argument espoused by Mario Draghi that Italian fiscal policy is on “automatic pilot” and that the budget deficit will narrow regardless of who eventually takes power. … Is Italy really on …
12th March 2013
Denmark is finally dragging itself out of its long slump. Households have started to deleverage, exporters have become more competitive and banks are now stronger. But given that these adjustments have further to run, the Danish economy will still lag its …
The detailed Portuguese GDP release for Q4 confirmed that the economy is in a worryingly deep and broad-based recession. The lack of evidence that the downturn is easing, coupled with voters’ growing resistance to austerity, suggests that financial …
11th March 2013
On balance, the latest batch of hard economic data from the euro-zone’s three largest economies makes fairly grim reading and casts further doubt on the view that the region as whole has begun to grow again. … Italian GDP (Q4), French Ind. Prod. & German …
The ECB’s inaction despite predicting continued recession and below-target inflation suggests that the central bank is either out of policy ammunition or holding what little it has back for an even rainier day. But we think it still has some ammo and …
January’s German industrial production figures added to the evidence that the economy entered 2013 in a better state than it ended 2012. But for the time being at least, growth seems to be modest at best. … German Industrial Production …
8th March 2013
Q4’s Icelandic GDP data confirmed that the economy is slowly recovering from its financial crisis. But while Iceland looks set to continue to outperform the peripheral euro-zone economies this year, growth will be pretty sluggish. … Iceland GDP …
Q4’s Icelandic GDP data confirmed that the economy is slowly recovering from its financial crisis. But while Iceland looks set to continue to outperform the peripheral euro-zone economies this year, growth will be pretty sluggish. … Iceland GDP (Q4 …
While some members of the European Central Bank’s Governing Council voted for an interest rate cut today, the majority still seems unconvinced that this would do any good. What’s more, the Bank suggested that there was very little that it could do to …
7th March 2013
