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The ECB followed up on its new strategy this week by raising the bar for future interest rate hikes. (See here .) The key change is that the Governing Council now says it will leave policy rates at current rates or lower until it sees inflation reaching …
23rd July 2021
Next year’s games will be better for Team N&S While the Swedish women’s football team humbled the USA in the first game of their Olympic campaign this week, Switzerland and the Nordic countries don’t tend to excel in the summer games. Indeed, as shown in …
Rising activity, rising inflation July’s euro-zone PMIs confirm that the economy is still rebounding rapidly and that price pressures are continuing to build. While the Delta variant poses a risk to our above-consensus GDP forecasts, it seems most likely …
The ECB followed through on its strategy review today by raising the bar for interest rate hikes in language which was probably a touch more dovish than expected. The Bank made no change to its guidance on asset purchases, but we think it will continue …
22nd July 2021
As elsewhere in mainland Europe, activity in Switzerland and the Nordic economies rebounded in Q2 as services sectors re-opened and the strength of global trade has buoyed exports. Our GDP forecasts for 2021 are generally above the consensus and output …
The pick-up in the euro-zone’s vaccine rollout means governments are unlikely to reintroduce significant new restrictions even as cases rise. So while the Delta variant might take some of the gloss off the recovery, it won’t derail it. But international …
21st July 2021
Earlier today we published our European Economic Outlook , in which we revised up our euro-zone GDP growth estimates this year and next, to an above-consensus 5.0% and 4.5% respectively. The rebound will be faster in the core countries than in the …
16th July 2021
Overview – The euro-zone is on the way to an almost full recovery. We expect Germany to regain its pre-pandemic level of activity later this year and the tourist-dependent southern countries to do so next year. The Delta variant may lead to some voluntary …
You guessed it: no change at the SNB The Swiss National Bank is nothing if not consistent. It has left interest rates unchanged since 2015 and is not shy about using the “copy and paste” function in its press releases. So it seems only natural that …
Governing Council will not change its key policy settings next week. However, it will amend its forward guidance to reflect its new, more dovish strategy. The new guidance will push back the likely timetable for any future rate hike. The ECB will set out …
15th July 2021
Semiconductor shortages to weigh on auto production for some time The euro-zone’s industrial sector took a step backwards in May as the global semiconductor shortage hit auto production. Supply disruptions look set to drag on for a while yet, constraining …
14th July 2021
Decline in inflation will reassure Riksbank The further fall in Swedish headline inflation in June is at odds with the recent data from the US and the UK, but came as no surprise given the recent drop in electricity prices. And with non-energy inflation …
Loose for (slightly) longer The ECB’s new symmetric 2% inflation target, with some tolerance for overshooting, is not as radical as it could have been, and does not grant the Bank as much flexibility as the Fed. But it is an important change that means …
9th July 2021
SNB policy tied to the ECB’s The adoption of a 2% inflation target by the ECB this week, and the announcement that the Bank will allow inflation to overshoot if needed, will not have been a he surprise to policymakers in Switzerland and the Nordics. …
Subdued core inflation will not prevent September rate hike The small increase in headline CPI inflation and small decrease in the Norges Bank’s target measure of inflation will make no difference to the immediate outlook for monetary policy, not least …
The details of the monetary strategy review were slightly less radical than had been suggested in parts of the financial media. But the changes announced today still amount to a historic shift away from Bundesbank orthodoxy and towards the mainstream. We …
8th July 2021
If confirmed, the ECB’s decision to adopt a 2% inflation target and allow room to overshoot it if needed would mark a historic shift towards the mainstream for the ECB. It would have no immediate implications for monetary policy, but in the longer run may …
The economy has continued to rebound strongly as governments have lifted almost all restrictions on retail and restaurants and eased rules on foreign travel. Restaurant bookings are back above pre-pandemic levels and the number of flights is rising …
7th July 2021
Norwegian economy back in business The larger-than-expected rise in mainland Norwegian GDP in May indicates that the economy is back in business following the lifting of restrictions, and it is likely to have regained its pre-virus level in June. The …
Auto sector dragging on the recovery The small decline in German industrial production in May, which left it well below its pre-pandemic level, was due to another big fall in vehicle production. The problems in that, admittedly important, sector are …
Retail sales back above pre-pandemic level Euro-zone retail sales rose back above their pre-pandemic level in May. And as Covid restrictions continue to be lifted, spending in the services sector is recovering very rapidly, which will provide a …
6th July 2021
Strong recovery accompanied by growing price pressures The PMIs point to the euro-zone economy recovering strongly in June and provide evidence that price pressures are now spilling over into the services sector, even in the periphery. Nevertheless, we …
5th July 2021
This week has seen another set of stellar business surveys, underlining that the recovery is still going strong. The final headline euro-zone Manufacturing PMI for June was revised up from the flash estimate to a new record high. And the EC’s economic …
2nd July 2021
“Stockholm Street” or “Stockholm-enders”? This week saw the latest instalment of the political soap opera in Sweden. Having lost a “no confidence” vote on the 21 st June (see here ), the resignation of Prime Minister Stefan Löfven on Monday means the …
We think that the Norwegian krone will continue to strengthen against the euro over next year or so. This is despite our forecast for a pull-back in oil prices and reflects our view of the relative prospects for monetary policy in Norway and the …
1st July 2021
Re-opening boosts hiring activity The big fall in euro-zone unemployment in May highlights that the re-opening of many services sector firms in that month has boosted hiring activity. And with a strong recovery now underway, it now looks unlikely that …
The Riksbank was always likely to maintain the status quo this morning, but against the backdrop of recent hawkish shifts by other central banks, notably the Fed, the focus was on how its thinking had shifted. The short answer is: not a lot. You did not …
The EU’s digital Covid certificate, which is being launched tomorrow, will have very little impact on European tourism this year. Non-essential travel is already possible, but most adults are not fully vaccinated and the Delta variant is making people and …
30th June 2021
Inflation likely to resume its upward path After dipping below 2% in June euro-zone inflation is likely to rise again in the coming months, led by higher inflation in Germany. But we think it will drop back early next year and remain low beyond that. The …
Recovery firmly underway Economic sentiment in the euro-zone improved sharply in June as restrictions were lifted further. Although industrial confidence was flattered by low levels of stocks, presumably relating to supply shortages, the big picture is …
29th June 2021
Global developments driving the Nordic majors After last week’s seemingly counterintuitive drop in the NOK following the hawkish message from the Norges Bank (see here ), it was the turn of the Swedish Krona to apparently defy the laws of the market: the …
25th June 2021
Another week, another set of euro-zone survey data highlighting the strength of the region’s economic bounce back as virus restrictions are lifted on the services sector. The flash Composite PMI for the euro-zone rose to its highest level in 15 years and, …
The further slowdown in the money supply growth in May is due to big changes during the first lockdown dropping out of the annual comparison. Money supply data will be affected by the pandemic for a while, making them difficult to interpret, but the …
Lingering restrictions on international travel to control the spread of the Delta variant mean that Spanish foreign tourist revenues this year will probably be only half what they were in 2019. That will hold back the pace of the overall recovery, even as …
24th June 2021
After last week’s hawkish shift by the Fed, and the erasure of any doubt about the start of hikes by the Norges Bank , the Riksbank may also pencil a rate hike into its projections next Thursday (1 st July). However, policy action will be centred on the …
Surge in services activity The German football team only narrowly scraped through the group stage of the Euros yesterday, but the news about the economy continues to be much more emphatic. The increase in the Ifo Business Climate Index (BCI) from 99.2 in …
Last week’s surprise change in the Fed’s guidance about how soon it is likely to raise its key policy rate raises the question of whether the ECB will follow suit. In our view, although the euro-zone faces similar inflationary pressures in the coming …
23rd June 2021
Output and prices both rising quickly The further strengthening of the euro-zone Composite PMI to a 15-year high in June underlines that the economy is rebounding quickly. Alongside this recovery, price pressures are continuing to build. But we still …
The passing of this morning’s “no confidence” vote in Swedish Prime Minister Stefan Löfven has plunged Sweden back into a period of political purgatory. While the political outlook is unclear, the near-term macroeconomic implications are likely to be …
21st June 2021
Football enthusiasts will not need to be told that life is still not back to normal in Europe. Only 13,000 fans watched Germany lose to France in the 75,000-capacity Allianz Arena, for example. Health restrictions also limit the number of people allowed …
18th June 2021
Norges Bank trumped by the US Fed The Norges Bank laid its cards on the table this Thursday, all but confirming that it will start to raise its key interest rate from September. (See here .) In the event, it was overshadowed by the less anticipated news …
Marine Le Pen’s RN party is likely to do well in French regional elections this month, a key test ahead of next year’s presidential election. A Le Pen presidency would no longer entail a “Frexit” but would hinder European fiscal integration. And it would …
17th June 2021
Reopening set to push inflation up further The final euro-zone inflation data for May do not provide much evidence that price pressures are rising as the economy re-opens. We suspect that these will materialise in the coming months and will push core …
While the Norges Bank left its policy rate on hold at a record low of zero once again this morning, it all but confirmed that it will raise rates in September – which would be well ahead of the RBNZ and the Fed, for example. We expect the NOK to gain …
While the Norges Bank will start hiking in Q3, and we now expect the Fed to raise rates twice in 2023, developments in Frankfurt will continue to set the tone at the Swiss National Bank. Having left the policy rate on hold at -0.75% again this morning, …
There is less spare capacity in Germany’s labour market than elsewhere in the euro-zone, and economic activity is set to regain its pre-crisis level before long. However, we think wage inflation (which has fallen sharply in the past year) will increase …
16th June 2021
The Delta variant does not appear to have taken hold in mainland Europe as yet, but the experience of the Alpha variety suggests that it could be dominant by the end of July. While this would be far from helpful, it should not prevent the euro-zone …
Wage growth to remain weak Average hourly labour cost growth slowed in Q1, and we expect wage growth to remain subdued over the coming years. This will keep underlying inflationary pressures down. Data released this morning showed that growth in average …
The ECB made significant upward revisions to its GDP forecasts last week, presumably encouraged by the recent experience of other economies. The Bank also seems to have come round to our view that the pandemic will not leave deep, lasting scars on the …
15th June 2021
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 …
