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Fall in German industrial production even worse than it looks Aggregate German industrial output fell sharply again in July and the fall was even larger if the construction and energy sectors are excluded. We expect production to drop further in the rest …
7th September 2023
The higher share of floating rate mortgages in Italy and Spain means that household interest spending in both countries has risen much further than in Germany and France. Interest spending is also set to keep rising much more quickly in Italy and Spain in …
6th September 2023
The German government is unlikely to announce the kind of big stimulus package that some are calling for. However, fiscal policy will remain much more supportive than it was before the pandemic. The German economy has struggled since the pandemic. In Q2, …
This page has been updated with additional analysis since first publication. Edge down points to period of weakness Euro-zone retail sales fell in July and, in our view, will keep declining over the rest of the year as the effects of tighter monetary …
Final PMIs underline that outlook has deteriorated The final PMIs published today were revised down from the already-low levels reported in the flash measure two weeks ago. The Services Business Activity PMI slumped compared to July, and although the …
5th September 2023
Swiss economy set to continue flatlining Weak manufacturing and investment weighed on the Swiss economy in Q2, leaving GDP unchanged from the previous quarter. We think activity will be sluggish for the rest of the year as the effects of monetary …
4th September 2023
Core inflation heading down August’s inflation data, published this week, increase our confidence that the core rate has passed its peak. Core goods inflation is clearly on a downward trend and has much further to fall as lower energy prices and improved …
1st September 2023
This publication has been updated with additional analysis. Inflation unchanged, set to stay below 2% Switzerland’s headline inflation rate was unchanged in August as a fall in core inflation was offset by the impact of rising fuel prices. This is the …
The repayment of ECB TLTROs by banks has gone smoothly so far and we expect the rest of the TLTROs to be repaid by the end of 2024 without significantly affecting financial conditions or interest rates. That said, the replacement of TLTROs with short-term …
31st August 2023
This page has been updated with additional analysis since first publication. September rate decision hangs in the balance The small upside surprise to euro-zone headline inflation in August was entirely due to energy, while the core rate edged down. We …
Inflation still stubbornly high August’s slightly higher-than-expected inflation rates in Germany and Spain mean euro-zone HICP inflation may not fall as far as we had anticipated (data due tomorrow) and marginally raise the chance of another rate hike in …
30th August 2023
This page has been updated with additional analysis since first publication. Euro-zone sentiment weakens further The decline in the euro-zone’s Economic Sentiment Indicator (ESI) in August leaves it consistent on past form with GDP stagnating at best in …
The effects of tighter monetary policy are very clear in the latest money and credit data, reinforcing our view that the euro-zone economy will perform worse than most analysts expect in the coming quarters. Data released yesterday showed that the sharp …
29th August 2023
Worries that Germany is becoming the “sick man of Europe” again have resurfaced over the past few weeks. The term was first used in relation to Germany in 1999, at a time when it had been growing much more slowly than countries such as France and Spain …
25th August 2023
This page has been updated with additional analysis since first publication. German economy set to contract again in third quarter The fourth successive monthly decline in the Ifo Business Climate Index in August, following the slump in the PMIs earlier …
Denmark’s economy has been among the fastest-growing since the pandemic and, although growth will slow in the coming months, we expect it to continue outperforming the euro-zone. Nonetheless, the DNB will probably keep its policy rates below those of the …
24th August 2023
The increase in the spot and particularly futures prices of European natural gas in the past few weeks suggests that there is an upside risk to our forecast for euro-zone inflation next year. However, prices would need to rise much further to …
23rd August 2023
This page has been updated with additional analysis since first publication. Germany leading euro-zone into recession August’s flash PMIs were worse than expected, particularly in Germany, and are consistent with our view that the euro-zone economy will …
While difficult to quantify, we estimate that the growth of tourism added around 0.3% to euro-zone GDP growth in the first half of 2023. However, we think growth will be much slower in the second half of the year as the sector has now broadly regained its …
22nd August 2023
Long road ahead for Spanish politics Yesterday’s election of the Socialist (PSOE) candidate as President of the Congress of Deputies suggests that the PSOE has the momentum as Spain’s politicians try to form a new government. But it remains unclear …
18th August 2023
Norges Bank is very close to the end of its tightening cycle. After today’s 25bp hike, taking the deposit rate to 4%, we expect one final 25bp increase in September. We have then pencilled in a faster pace of rate cuts next year than policymakers …
17th August 2023
Only one more Norges Bank hike to come Norges Bank is very close to the end of its tightening cycle. After today’s 25bp hike, taking the deposit rate to 4%, we expect one final 25bp increase in September. We have then pencilled in a faster pace of rate …
The support to industrial production from the end of major supply chain disruption has run its course. And while the drop in gas prices over the past year could give a boost to some firms, output expectations in the most energy-intensive sectors are …
16th August 2023
This page has been updated with additional analysis since it was first published. Weak manufacturing to continue to weigh on economic growth Despite euro-zone industrial production having increased in June on a monthly basis, it remained well below its Q1 …
Unchanged inflation points September rate hike The unchanged readings for both headline inflation and the Riksbank’s target variable suggest that a further interest rate hike in September is highly likely. Headline inflation came in at 9.3% in July, …
15th August 2023
Core inflation has been falling for around a year in the US and we suspect that it won’t be long before it starts falling in the euro-zone too. However, while core goods inflation in the euro-zone is likely to follow that in the US by dropping sharply, we …
14th August 2023
It is not surprising that Italian bank shares slumped this week after the government announced that it is imposing a windfall tax on the banks. The decision seemed to come out of the blue and to have been cobbled together at the last minute with several …
11th August 2023
We are unconvinced by Christine Lagarde’s claim that the recent strength of employment in the euro-zone is due mainly to labour hoarding and shifts in the sectoral composition of employment. Instead, we suspect it is mainly due to understaffed firms …
10th August 2023
We think Norges Bank will go through with its plan to raise its policy rate by 25bp next week, to 4.0%, and follow that up with a final hike in September to 4.25%. At its last meeting, in June, Norges Bank raised its policy rate by 50bp, to 3.75%. That …
Decline in inflation in line with central bank’s expectations July’s decline in inflation in Norway was broadly in line with the central bank’s forecast. So Norges Bank is likely to go ahead with its planned 25bp rate hike next week. The decline in …
The appreciation in the Swiss franc this year has been largely at odds with moves in many of the factors which typically drive the currency. We believe this is mostly due to intervention from the Swiss National Bank (SNB) in foreign currency markets. …
7th August 2023
Slump in June and more weakness to come German industrial output fell in June and we expect it to decline further in the rest of this year as high interest rates and weakening demand take a toll on production. The 1.5% m/m fall in industrial production …
Extreme weather phenomena in Europe as well as worldwide, including El Niño , could push up food and energy prices. But we think that these only pose a very small upside risk to our inflation forecasts. Over the past few years, warmer temperatures and …
4th August 2023
Our new GDP forecasts There was something for both the bulls and bears in the euro-zone’s Q2 GDP data. For the bulls, the data were better than expected and show that the economy continued to dodge a recession. For the bears, some one-off factors meant …
Renewed drop and more weakness ahead Euro-zone retail sales fell in June and we expect them to continue to trend down over the rest of this year as high interest rates take an increasing toll on consumers. The 0.3% m/m drop in retail sales in June was …
We think the euro-zone economy will contract in the second half of 2023, and the subsequent recovery will be sluggish due to the lagged impact of monetary policy tightening as well as tight fiscal policy. Headline inflation in the euro-zone will continue …
3rd August 2023
Recession likely in H2 The final euro-zone PMIs confirmed that economic conditions deteriorated in July, with the Composite index consistent with GDP declining slightly. We continue to expect the euro-zone economy to fall into recession in the second half …
This page has been updated with charts since first publication. Inflation declines further below 2% Easing core inflation drove headline inflation lower in July, but we don’t expect it to fall much further this year. Despite inflation now sitting within …
This page has been updated with additional analysis since first publication. Tight labour market will only loosen gradually The euro-zone labour market remains extremely tight, with the unemployment rate steady at a record low in June. We expect weakness …
1st August 2023
The 0.3% rise in euro-zone GDP in Q2 was largely due to a huge increase in Ireland’s GDP and the export of a cruise ship from France. Neither of these is a sustainable source of growth. With more of the hit from tighter monetary policy to come, we still …
31st July 2023
This page has been updated with charts since first publication. Services inflation rises again, recession still likely July’s inflation data will have been a disappointment for policymakers as, although headline inflation fell in line with expectations, …
Italy from leader to laggard The drop in GDP in Italy in Q2 means euro-zone output probably rose by 0.3% q/q in Q2, and just 0.1% if Ireland is excluded. Italy is no longer outperforming its peers and we think it will experience a sharper drop in output …
Europe benefitted less than the US from information-communications technology between the mid-1990s and mid-2000s because most of the innovative tech firms were based in the US and structural factors slowed the diffusion of new technology through the …
28th July 2023
GDP data released this week suggest that the euro-zone economy held up better than we expected in Q2. Output rose in France and Spain and stagnated in Germany . Together, the national data point to euro-zone GDP rising by 0.4% in Q2 rather than falling …
This page has been updated with additional analysis since first publication. Business surveys point to stagnation The small fall in the EC Economic Sentiment Indicator (ESI) in July leaves it consistent on past form with output stagnating and suggests …
Germany still the weak link National data released so far suggest that the euro-zone economy held up better than we had anticipated in Q2, with Germany still the laggard among major economies. We continue to think that monetary tightening will take an …
Strong economic growth in France and Spain The big increases in Q2 GDP in Spain and particularly France suggest that the euro-zone has so far coped with policy tightening much better than feared. However, the France data were flattered by temporary …
The ECB’s decision to raise rates by 25bp today and Christine Lagarde’s guidance that another hike was a “decisive maybe” will not have surprised anybody. On balance, we think the Bank will probably nudge rates up to 4% in September or October and keep …
27th July 2023
ECB hikes and leaves options open As was universally expected, the ECB raised interest rates by a further 25bp today and indicated that further hikes are possible but not certain. At the press conference we expect the main message to be that policy will …
Tighter monetary policy has had a big impact on financial conditions in the euro-zone, but we think its effect on activity is still in its early stages . Even if the region falls into a mild recession, it will be some time before policymakers are …
26th July 2023
