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We don’t think the collapse of SVB, problems at Credit Suisse and volatility in markets will deter the Norges Bank from raising its policy rate by 25bp next week, to 3.0%. If anything, the risks are skewed towards a 50bp hike. And we think the policy rate …
17th March 2023
We think the SNB will push ahead with rate hikes despite the Credit Suisse crisis, and raise the policy rate by 50bp to 1.5% next Thursday. By its own exacting standards, inflationary pressures in Switzerland are acute with core inflation reaching its …
16th March 2023
Investors have taken today’s 50bp rate hike by the ECB as dovish, and the peak deposit rate now priced into markets is between 3% and 3.25%. We think the risks are skewed towards rates going higher than this and the economy performing much worse than …
ECB prioritises inflation fight The ECB’s decision to raise interest rates by 50bp today was the riskiest of the available options – we think investors would have understood if the Bank decided to pause. But the Bank has hinted that it could offer new …
Just when financial markets appeared to be calming down after the SVB saga, the sell-off in European bank shares has resumed this morning due to concerns about the viability of Credit Suisse. At this stage, a huge amount is unclear, but a few points are …
15th March 2023
Resilience in January unlikely to last The rise in industrial production in January was entirely due to strong growth in Germany and Ireland, with all other major euro-zone economies recording a fall in output. We expect industry to struggle this year as …
Soaring core inflation adds to pressure on the Riksbank Although it was partly due to higher food prices, the jump in the “core” measure of inflation in Sweden to 9.3% will reinforce policymakers’ determination to raise rates further. We expect another …
GDP shrank in Q4 (to two decimal places) The third estimate of euro-zone GDP in Q4, released earlier this week, strengthened our conviction that the economy will underperform most forecasters’ expectations. The 0.1% q/q expansion in GDP in the fourth …
10th March 2023
A closer look at Swiss inflation We learnt this week that Swiss headline inflation rose from 3.3% in January to 3.4% in February, driven by core inflation which increased by 0.2%-pts. (See here .) But the growth in underlying prices pressures appears to …
Lower inflation means Norges Bank can stick to 25bp hikes February’s decline in headline and core inflation takes some of the pressure off the Norges Bank and means that it is likely to hike by 25bp at the meeting in two weeks’ time. After surprising on …
50bp hike looks a done deal. New guidance likely to explicitly point to higher for longer policy rates. No more news on QT next week, but we expect it to accelerate in July. We expect the ECB to raise interest rates by 50bp next week and accompany that …
9th March 2023
Recent evidence about the health of the euro-zone economy has been mixed. National figures released so far suggest industrial production rebounded in January but retail sales remained very weak. And while activity surveys now point to a small expansion …
8th March 2023
Euro-zone flirting with recession Revised figures show that the euro-zone economy flatlined in Q4 last year and that domestic demand dropped sharply. There have been some positive signs in the past couple of months, but policy tightening is likely to …
Industrial rebound, but recession still coming The big rebound in German industrial output in January suggests that industry may continue to hold up well in the face of the energy crisis. However, with the renewed drop in retail sales pointing to …
Industrial rebound, but recession still coming The big rebound in German industrial production in January suggests that industry may continue to hold up well in the face of the energy crisis. However, with the renewed drop in retail sales pointing to …
Germany is more vulnerable than most advanced economies to a reduction in trade with China both because of the scale of trade and the use of Chinese-made inputs to its large manufacturing sector. We have highlighted in our Spotlight series that the …
6th March 2023
Sales up in January but trend is still down January’s rise in euro-zone retail sales was not enough to offset December’s fall. And the low levels of household confidence suggest that consumption will decline in the coming months. The national-level data …
Inflation likely to stay above 3% over the coming months. The CPI data for February suggest there is a long way to go before inflation returns to target especially as underlying prices pressures show no signs of abating, with the core inflation rate …
Another inflation surprise… The focus this week was on yet another higher-than-expected inflation print. The headline inflation rate edged down in February, but only to 8.5%, whereas a much bigger fall had been anticipated. And the core measure rose …
3rd March 2023
Sweden in recession This week brought yet more bad news about Sweden’s economy. Before the first release of Q4 GDP on 30 th January, the available monthly data pointed to an increase of around 0.5% q/q in the quarter as a whole. But those data were then …
PMIs point to resilience, especially in services February’s final Composite PMIs suggests that economic activity in the euro-zone has been fairly resilient in February, with the indices for Spain and Italy, and for the services sector, particularly …
The account of the ECB’s last meeting is consistent with our view that the ECB will raise its deposit rate to 3.0% a fortnight today and continue hiking beyond that. In light of the data released since the last meeting, there are growing upside risks to …
2nd March 2023
Strength of core inflation means ECB has a long way to go February’s increase in core inflation will reinforce ECB policymakers’ conviction that significant rate increases are needed. For some time we have been forecasting a 50bp hike at the meeting in …
Euro-zone HICP (Feb.) Strength of core inflation means ECB has a long way to go February’s increase in core inflation will reinforce ECB policymakers’ conviction that significant rate increases are needed. For some time we have been forecasting a 50bp …
In our view, the Chairman of the SNB has over-stated the role of the exchange rate in explaining why inflation has remained so comparatively low in Switzerland in the past two years. However, policymakers’ focus on the currency will encourage them to …
1st March 2023
Renewed rise in inflation will worry ECB The renewed rise in headline inflation in Germany, France and Spain in February suggests euro-zone inflation edged up this month, rather than falling as had been expected. With signs that underlying inflationary …
Pandemic savings won’t rescue the economy The value of savings that households built up during the pandemic has been wiped out by inflation. Rising interest rates, together with a desire to rebuild the spending power of their savings, suggest that …
28th February 2023
Economy stagnates in Q4 Despite stagnating in Q4, the Swiss economy remained notably bigger than its pre-pandemic level and has outperformed its European peers. We are forecasting a contraction in Q1 2023 and for the economy to flatline over 2023, but …
Recovery in business sentiment falters The stabilisation of the EC’s economic sentiment indicator in February contrasts with the significant increases in the PMIs and provides some support for our view that the economy will struggle this year. It also …
27th February 2023
The effects of tighter monetary policy are clear in the money and credit data. Households and firms have continued to lock their money up in longer-term deposits which are less likely to be spent, and lending growth has slowed very sharply. This paints …
After the US and the UK, it was the euro-zone’s turn to release better-than-expected activity data this week. Admittedly, we learned that German GDP fell by 0.4% q/q rather than 0.2% in Q4. This means the euro-zone economy probably stagnated in Q4 …
24th February 2023
As we noted here , the Riksbank has made a big policy shift in the few weeks since Erik Thedéen took over as Governor. The most concrete changes were to raise its forecast for policy rates and announce the start of outright asset sales, but the Bank has …
Economy much weaker than thought in Q4 The downward revision to German Q4 GDP means the hit to activity at the end of last year was closer to our original expectation. It also suggests a technical recession in Germany during Q4 and Q1 is likely. Today’s …
The surprise upward revision to euro-zone core inflation in January, to a new record high, will embolden the majority of ECB policymakers who want to press on with significant further rate hikes. The upward revision to January’s euro-zone headline …
23rd February 2023
German inflation mystery continues The final release of German HICP for January confirmed that the headline rate fell but, disappointingly, still didn’t reveal what happened to the core rate. That said, there was some evidence that underlying price …
22nd February 2023
The sharp fall in European electricity prices sets the stage for a recovery in metals output across the region. As power prices are still historically high and unlikely to fall that much further, however, the potential for a full and rapid recovery is …
Further improvement, but headwinds still strong The further rise in the Ifo in February confirms that the German economy may have been a bit more resilient than we had expected in Q1. But with the index still in recessionary territory and the drag from …
The euro-zone’s Composite PMI was much stronger than expected in February, but it excludes the construction sector where prospects are weaker. Tighter financial conditions and softer demand in the region as a whole, together with the removal of generous …
21st February 2023
Swedish house prices have fallen 18% from their peak and could drop by a further 5% or so from here. This should not cause significant financial stability problems but will be a major drag on economic activity and is a key reason why we expect Sweden to …
Sentiment continues to improve The ZEW indicators point to a further improvement in sentiment towards Germany and, along with other recent surveys, suggest that the economy is holding up better than we had anticipated. The rise in the ZEW economic …
Economy growing, price pressures remain strong February’s chunky rise in the euro-zone Composite PMI suggests that the economy will grow in Q1. With the labour market still very tight and price pressures strong, the survey will reinforce ECB …
Economy growing, price pressures remain strong February’s chunky increase in the flash euro-zone Composite PMI highlights the continued resilience of activity and suggests that the economy will grow in Q1. With the labour market still very tight and price …
Q uantitative tightening and the repayment of TLTROs mean that the ECB’s assets are likely to decline by around one quarter by the end of 2024. We expect the repayment of TLTROs to have a negligible macroeconomic impact. QT should also proceed smoothly, …
20th February 2023
The minutes of the Riksbank’s latest policy meeting show that the previously dovish Executive Board members have become less so, and that the new members are on the hawkish side. That reinforces our view that the Bank will raise rates by 50bp in April …
Yet another increase in core inflation The fall in the Riksbank’s target measure of inflation was largely due to a huge one-off drop in electricity prices but policymakers will focus more on the big increase in core inflation. This vindicates their recent …
The ECB’s doves have been pretty quiet for the past few months, but Fabio Panetta – who is probably the most influential one these days – gave a moderately dovish speech this week. Among other things, he suggested that inflation may already have peaked. …
17th February 2023
The increase in Switzerland’s core inflation rate in January is likely to provoke a strong response from the SNB at its next meeting in March. We now forecast it to raise the policy rate from 1.0% to 1.5% at that meeting, followed by an additional 25bp …
We think French wage inflation will remain much stronger than in the pre-pandemic period this year. This is not least because of the automatic adjustments to inflation of the minimum wage and negotiated wages engrained in the French system. Charts 1 …
16th February 2023
The resilience of the economy and house prices, together with the strength of inflation, suggest that the Norges Bank will raise interest rates a bit further than we previously anticipated. We now forecast the Bank’s key policy rate to peak at 3.5% in …
15th February 2023
