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This month’s French presidential election no longer looks like the shoo-in for incumbent Emmanuel Macron that it did only a few weeks ago. Right-wing nationalist Marine Le Pen’s chances have risen sharply over the past week or so and a surprise victory …
8th April 2022
While the prospect of a euro-zone break-up looks more remote than during the 2017 French presidential campaign, the possibility of Marine Le Pen taking power is still a major risk to euro-zone financial markets. As we discussed here and here , the recent …
7th April 2022
ECB will reiterate plan to end asset purchases in third quarter… …but will acknowledge that inflation is much higher than expected. We think it will raise the depo rate as soon as July and lift it to +0.25% by year-end. The Governing Council is likely to …
The risk of stagflation has risen substantially. The latest surveys suggest that the economy held up pretty well in March, but the forward-looking indicators paint a much gloomier picture of the months to come. The Sentix investor sentiment indicator …
Modest growth before the war in Ukraine The small increases in euro-zone retail sales and German industrial production suggest that economic activity was growing at a modest pace in February. With much higher energy prices now weighing on manufacturing …
Pandemic-related effects and higher energy prices have played a significant part in pushing up inflation in the euro-zone, but domestically-generated “underlying” price pressures have increased too. That should make policymakers more confident that …
6th April 2022
The chances of right-wing nationalist Marine Le Pen winning the French presidency later this month appear to have risen sharply over the past couple of weeks. A victory for Le Pen would almost certainly worsen the public finances and place a question mark …
5th April 2022
Output expectations hardest hit in Germany March’s final euro-zone PMI surveys confirmed that output expectations fell sharply, with Germany experiencing the biggest drop. Meanwhile, price pressures remain intense across the currency union. The small …
Another month, another inflation surprise With euro-zone inflation having jumped to 7.5% in March (see here ) it seems increasingly likely that the ECB will accelerate its plans to tighten monetary policy. We now think it will end net asset purchases in …
1st April 2022
Shifting goalposts for Nationalbank and SNB The fact that we now expect the ECB to hike interest rates sooner and faster than we previously anticipated naturally affects our outlooks for policy in Switzerland and the Nordics. Note that we now forecast the …
Inflation overshoot will soon prompt ECB into action With euro-zone inflation rising even further above the ECB’s forecast, and likely to remain very high for the rest of the year, we think it won’t be long before the Bank starts raising interest rates. …
Swiss inflation to remain above 2% for much of this year Swiss inflation rose further above the SNB’s definition of price stability in March, and higher commodity prices and continued supply problems will keep it there for most of this year. Given the …
Weakening GDP growth in the euro-zone’s trading partners – and a slump in Russia’s economy – mean that the currency union’s exports look set to grow very slowly this year. The early evidence shows that the war in Ukraine has led to a drop in export …
31st March 2022
Labour market very tight prior to Ukraine war The euro-zone unemployment rate edged down yet again in February, to a record low of 6.8%. There is little sign yet that this is feeding through to higher wages. But labour market conditions are set to remain …
With the Ukraine war and pandemic-related prices pressures still much stronger than anticipated, we think the ECB will not want to wait much longer before beginning to raise interest rates. Our new forecast is for three 25bp rate hikes this year and five …
30th March 2022
Ouch! German inflation hits 40-year high After a further huge jump in March, German inflation is likely to average at least 7% this year, and there are plenty of upside risks, not least the threat of power shortages. With price pressures remaining very …
Chances of a manufacturing recession increasing The European Commission business and consumer survey for March is consistent with our view that economic growth will be slower than most anticipate this year while inflation will overshoot expectations. The …
We estimate that euro-zone governments’ fiscal deficits will be around 1% higher than expected this year, as a result of the war in Ukraine, mostly due to government subsidies for energy, support for refugees and higher defence spending. This will soften …
29th March 2022
With euro-zone inflation set to average around 6% this year, we expect aggregate real household incomes to fall by about 1.5%. The impact on consumption will be cushioned to some extent by fiscal support and, to a greater extent, by a decline in the …
28th March 2022
European policymakers remained divided this week on whether to impose more curbs on Russian oil and gas. As we argued here , an EU embargo on Russian oil would be less disruptive than cutting off natural gas. But the EU is determined to reduce its …
25th March 2022
Breman vents to a bunch of 16-19 year olds Riksbank Deputy Governor Anna Breman appeared to take out her hawkish frustrations on a group of secondary students in a speech on Wednesday. One can only speculate as to what the pupils made of the talk; while …
Manufacturing contraction looming March’s Ifo business survey provides further evidence that Germany is heading for a sharp slowdown as the war in Ukraine and sky-high energy prices cause manufacturing output to contract. However, we still think a …
Ida Wolden Bache kicked off her time in charge at the Norges Bank with a rate hike and prepared the ground for even more aggressive tightening. We now expect 175bps of hikes by end-2023, to 2.50%, and there is good chance that the Bank front-loads the …
24th March 2022
Slower growth, higher inflation March’s euro-zone PMI survey is consistent with our view that the economy will grow more slowly than most anticipate this year, while inflation will overshoot expectations. The small fall in the Composite PMI, from 55.5 in …
An EU embargo on Russian oil would push up oil prices and exacerbate the cost-of-living crisis facing consumers. However, while there would be logistical challenges, oil supplies would be easier to replace than natural gas and we estimate that the direct …
23rd March 2022
Outlook for consumption darkened by war in Ukraine The huge fall in consumer confidence in March suggests that consumption may have contracted as the war in Ukraine and higher energy prices reduced households’ willingness and ability to spend. In turn, …
Just as the supply problems facing euro-zone manufacturers showed tentative signs of easing, the war in Ukraine has created new headwinds. It would not be surprising if industrial output fell in the coming quarters. But rising services demand should mean …
22nd March 2022
What’s Swedish for “fundamental change of view”? In a week when the US Fed and the Bank of England both raised interest rates, Riksbank Governor Ingves finally appears to have woken up to the need for tighter policy in Sweden. Mr Ingves reportedly said …
18th March 2022
Things can only get better worse? Our economic forecasts are based on a working assumption that there is no diplomatic solution to the war in the next few months, that Russia remains economically isolated and that sanctions are not rolled back. This is …
Slower wage growth despite shortages The latest data show that euro-zone wage growth remained subdued at the end of last year, despite reports of widespread labour shortages. The tightening in the labour market that we expect is likely to put upward …
The Norges Bank will kick off the post-Olsen era next Thursday with a 25bp interest rate hike, to +0.75%, and while we expect it to raise rates three more times this year, the balance of risks is skewed towards it proceeding even faster. Meanwhile, …
17th March 2022
While Cyprus’s strong ties to Russia make it is vulnerable to recession, the country’s public finances and banking sector are in better shape than they were before the crisis which took place a decade ago. And any problems in Cyprus are very unlikely to …
Headline inflation to stay around 6% until Q4 With the war in Ukraine pushing up energy and food prices and potentially exacerbating supply problems, we think euro-zone inflation will remain around 6% until Q4 and average well above 2% next year. …
Food inflation in the euro-zone is on the rise and the war in Ukraine will make matters worse. While policymakers might normally “look through” a period of high food inflation, with the headline rate already high there is a risk that rapid increases in …
16th March 2022
The latest surveys show that the war in Ukraine has severely dented euro-zone investors’ and companies’ perceptions of the outlook. This is consistent with our view that the war will cause a significant hit to economic activity, but for now, we still …
15th March 2022
Another blow to the notion of Swedish inflation exceptionalism The stronger-than-expected increase in Swedish inflation in February is surely the final nail in the coffin for the Riksbank’s thus-far dovish stance, and lends support to our view that the …
14th March 2022
Cyprus is by far the most exposed euro-zone economy to the collapse in Russia’s economy and it now looks very likely to fall into recession in the coming quarters. In this Update , we take a look at the economic and financial links between the two …
11th March 2022
Franc(ie) goes to Hollywood parity The Swiss franc rose through parity with the euro in the early hours of Monday for the first time on record. However, its foray into uncharted territory was brief, and it has since given up the gains it made in March. It …
Yesterday’s ECB announcement was more hawkish than expected, but so far the Bank’s Chief Economist Philip Lane hasn’t published a new blog post to correct the message as he has done a number of times in the past. You can read our response to the decision …
In today’s monetary policy statement, the ECB said the Russian invasion of Ukraine was a watershed moment for Europe, but it concluded that it does not require a big change in monetary policy. Indeed, the Bank announced an acceleration in the pace at …
10th March 2022
There has been some discussion of possible FX intervention by the ECB to support the euro, but there is next to no chance of that being announced at today’s press conference, and unless the single currency falls much further we think likely the Bank will …
The EU is considering more joint bond issuance, reportedly of around €200bn or 1.4% of EU GDP. If this is agreed, the devil will be in the detail and the amounts involved may fall short of some expectations. But it could cover much of the additional …
9th March 2022
While the plan to reduce Europe’s reliance on Russian gas this year seems achievable, it will only lock in higher-for-longer gas prices and prolong the squeeze on household incomes. The centrepiece of the European Commission’s “REPowerEU” package, …
The war in Ukraine has prompted us to revise our forecasts for euro-zone GDP, inflation and monetary policy. Russia’s downturn in 2015 had no obvious impact on euro-zone GDP and Russia has become less important as an export market since then. But we …
4th March 2022
Finland most exposed to Russian sanctions We have yet to revise down our GDP growth forecasts for Switzerland and the Nordics in response to the sanctions on Russia, but the negative impact of the conflict will be smaller than for the euro-zone. (Note …
The war in Ukraine has intensified this week, and we have continued to write extensively across all our services about the financial and economic implications, all of which can be found here . In last week’s Weekly , we argued the war in Ukraine would …
Outlook for retail sales darkened by war in Ukraine The small rise in retail sales in January, after a steep fall in December, suggests that Omicron remained a drag on consumption. Although spending will have rebounded in February, higher energy prices …
ECB will stress caution and flexibility in light of Ukraine war. New ECB forecasts will show lower growth, much higher inflation. Policymakers will still plan to resume normalisation when and if the situation is clearer. At next week’s monetary policy …
3rd March 2022
The EU’s decision to suspend its debt reduction rule for another year gives countries the green light to ramp up spending on defence and cushion the blow from higher energy prices. Depending on how long the conflict lasts, and how severe the side effects, …
While supply-chain links between the EU and Russia and Ukraine are small, shortages of seemingly obscure inputs can cause significant disruption, and add to price pressures, if alternatives cannot be sourced quickly. Aside from the most energy-intensive …
