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End to deflation won’t faze the SNB April marked the end of the recent bout of deflation in Switzerland, and the headline rate is likely to climb higher over the coming months. Meanwhile, further confirmation that the Swedish economy is firing on all …
5th May 2021
PMIs overstating growth The PMIs may be a less reliable guide to activity growth than normal, but recent progress on vaccinations suggests that the euro-zone economy will start to recover in Q2. And price pressures are intensifying. April’s Composite PMI …
GDP data published this morning confirmed that the euro-zone economy contracted slightly in Q1, even though the business and consumer surveys painted an improving picture. Those same surveys suggest that sentiment and activity improved again in April. The …
30th April 2021
Riksbank and Fed singing off similar hymn sheets As expected, the Riksbank left its repo rate and other policy settings unchanged on Tuesday. (See here .) However, the chunky upward revisions to its near-term GDP forecast were swiftly vindicated by the …
Another fall, but outlook brightening Confirmation that the euro-zone economy contracted again in Q1 means that the region suffered a second technical recession in just over a year. But the good news is that things should get better towards the end of Q2 …
Headline inflation to exceed 2% soon Euro-zone inflation continued on its upward trend in April and we think that it will soon rise above 2%. But that should only be temporary and we expect it to fall back below the ECB’s target in 2022. The increase in …
Rising case numbers don’t stop economy growing The unexpected increase in French GDP in Q1 suggests that the economy has been more resilient to the poor health situation and restrictions than we had thought. Nevertheless, with France in a full national …
The Norges Bank is set to leave rates on hold at zero next Thursday, but the countdown to lift-off is ticking and tighter macroprudential policy to counter momentum in the housing market looms. Having slashed the policy interest rate by 150bps to a record …
29th April 2021
Surge in ESI suggests activity held up at start of Q2 April’s jump in the EC’s Economic Sentiment Indicator (ESI) for the euro-zone was surprising given the restrictions still in place. Although the surveys have been too optimistic about activity in Q1, …
The slowdown in money growth in March in year-on-year terms was largely due to base effects. It was still in the double digits and should remain strong over the rest of this year at least. But with the economy operating some way below its potential, we …
Economy came roaring out the blocks, and is getting into its stride The stronger-than-expected increase in Swedish GDP in Q1 means that the economy has already largely regained its pre-virus peak. Meanwhile, the jump in the ETI in April suggests that the …
The ECB is likely as part of the strategic review to place more emphasis on housing costs and may initiate the creation of a parallel price index that includes them, but it will not change the inflation measure that it targets. Greater consideration of …
28th April 2021
Next Generation EU has the potential to provide a significant stimulus to the economy over the next six years. But the impact on GDP might be smaller than most expect, while the impact on long-run potential output is uncertain. And when it comes to fiscal …
27th April 2021
The decision by the Riksbank to leave the repo rate and its other policy settings unchanged today will have come as a surprise to no one. While policymakers are increasingly optimistic about the near-term outlook for the economy, they are clearly in no …
Survey suggests economy is not growing April’s Ifo Business Climate Index (BCI) is consistent with the economy treading water at the beginning of Q2 as optimism has been dented by supply bottlenecks and the Covid-19 restrictions. The small increase in the …
26th April 2021
Below, but close to, a significant PEPP increase There were no real surprises at this week’s ECB meeting (see here ), but the Governing Council will have some decisions to make at the meeting in June. The first will be what to do with its economic …
23rd April 2021
EC offering carrots, following failure of the stick The long-running saga over a new bilateral “framework agreement” between Switzerland and the EU is back in the news, with the current Swiss President, Guy Parmelin, set to meet his European Commission …
Supply shortages continuing to drive up input prices April’s small rise in the euro-zone Composite PMI was a bit of a surprise given the tightening of virus restrictions. But the survey has overstated the strength of activity in recent months, and the …
In today’s ECB press conference, Christine Lagarde did not seem fazed by the recent rise in bond yields or the evidence of tighter bank lending conditions. But we suspect that policymakers will push back against further increases in yields until next year …
22nd April 2021
The amount of slack in the euro-zone’s labour market diminished slightly at the end of last year. But crucially, it remained higher than it was in 2019 and it is unlikely to have fallen much further at the start of this year. Accordingly, there is still …
20th April 2021
The Riksbank is all but certain to leave its repo rate on hold next Tuesday (27 th April), and will stick to the plan to spend the entire SEK 700 billion asset purchase envelope by the end of the year. The stage is set for a prolonged period of policy …
Tighter bank lending standards a headwind to recovery The Q1 ECB Bank Lending Survey revealed that the demand for bank credit fell in early 2021, and banks continued to tighten their lending standards as the pandemic dragged on and vaccine rollouts …
The fact that the US Treasury refrained from calling Switzerland a currency manipulator in its latest report lowers the temperature in US-Swiss relations but doesn’t change the policy equation for the SNB. Having designated Switzerland a currency …
19th April 2021
As elsewhere in mainland Europe, the slow vaccine rollout means that the rebound in domestic activity is unlikely to get underway in earnest until Q3. Denmark is a noteworthy exception; its comparative success in containing the virus has allowed it to …
16th April 2021
News that distribution of the Johnson and Johnson (J&J) vaccine is being paused due to evidence that it causes extremely rare but serious blood clots came as another blow to the region’s vaccination efforts this week. As we noted here , the EU was …
Public health officials calling the shots This week’s decision by Denmark to discontinue usage of the AstraZeneca vaccine understandably took the headlines. (Incidentally, note that the jab is now officially known as ‘Vaxzevria’, which could be a …
Overview – The slow vaccination programme has left the euro-zone well behind the US and UK in coming out of the health crisis. We think the economy will not expand at all in Q2 and GDP growth will be much weaker than the consensus expects this year. …
15th April 2021
Bank will stress that the recent increase in inflation is likely to prove temporary. Lagarde to say many indicators are considered in assessing “financing conditions”. Weekly PEPP purchases and bond yields will be broadly unchanged in coming months. After …
The partial unwinding in the reflation trade in recent weeks has stopped the decline in the Swiss franc in its tracks. Having depreciated against both the US dollar and the euro since the start of this year, the franc rose against both currencies in …
14th April 2021
The delayed start to deliveries of the J&J vaccine is yet another blow to the rollout in continental Europe and on its own could delay things by at least one month compared to a situation in which the recent pace of vaccinations is sustained. This Update …
Shortages weighing on car production, but demand strong Euro-zone industrial production fell in February, reinforcing our view that the euro-zone economy has made a weak start to the year. Although the business surveys have overstated the strength of …
Nearing the Riksbank’s target Swedish inflation rose closer to the Riksbank’s 2% target in March, in line with expectations. As it should only breach the target temporarily, we continue to expect the Riksbank to keep the repo rate on hold for the …
A divergence between strong surveys and weak industrial ‘hard’ data, mainly in the euro-zone, has again raised questions about how to interpret the business surveys. There are several reasons why survey indices of output have overstated the actual …
13th April 2021
Restrictions still holding back retail spending Euro-zone retail sales rose in February but were 2.8% below their pre-pandemic levels. In many countries coronavirus restrictions have been tightened since then, and are unlikely to be eased again until well …
12th April 2021
We estimate that households accumulated “excess” savings of around 4.4% of GDP last year. But they are unlikely to spend this cash any time soon, so it will probably not do much to boost the recovery. Data published today show that euro-zone households …
9th April 2021
The IMF gives Switzerland tops marks for effort The IMF completed its latest Article IV consultation with Switzerland this week. The concluding statements of such missions are typically rather anodyne but this one included some linguistic flourishes. For …
The final release of the euro-zone PMIs for March this week showed that the Composite index for the region was even stronger than previously estimated and that the increase was broad-based. This rounded off a strong run of business and consumer surveys …
German GDP will have fallen in Q1 The unexpected fall in industrial production in February means that German GDP will almost certainly have contracted in Q1. With severe restrictions likely to remain in place until well into the second quarter, a …
Persistently above-target inflation to pave way for rate hikes The fact that core inflation in Norway came in above target for the fifteenth month in a row in March came as no surprise. However, it underlines that the Norges Bank is in a very different …
The euro-zone economy is doing better than many expected given that much of the hospitality and travel sector is still closed due to virus-related restrictions. Indeed, the latest business surveys suggest that manufacturing output is growing at a …
8th April 2021
The account of March’s ECB meeting showed that the decision to increase asset purchases was agreed by all members, but that some were reluctant to do much more. In practice, purchases haven’t risen very far since then. Given that the Bank could have …
Economy started 2021 on the front foot Monthly GDP data from Sweden for February indicate that output it is all but certain to have expanded in Q1. The recent surge in virus cases casts a cloud on the government’s plans to ease restrictions again soon, …
PMIs could be overstating recovery The euro-zone Composite PMI rose to an 8-month high in March, but the level of activity remains low. And while the PMIs suggest that price pressures are building, we suspect this will be temporary. The increase in the …
7th April 2021
The comparative success that the Danish government has had in handling COVID has allowed it to start to re-open the economy, despite the painfully slow progress on the vaccine front. Most economies in Europe are not as well placed, however, so their …
6th April 2021
Unchanged jobless rate even as restrictions are tightened The euro-zone’s unemployment rate was unchanged at 8.3% in February despite tighter virus measures being tightened, highlighting the extent to which government policies have protected jobs during …
The broad consensus among Germany’s major parties means that September’s election will not lead to big macroeconomic policy changes. But with the Greens and/or SDP set to gain influence, fiscal policy could become marginally less conservative, and Germany …
1st April 2021
Swiss manufacturers are too busy for pranks The spaghetti-tree hoax of 1957, which purportedly showed a Swiss family harvesting spaghetti from a tree, is widely regarded as one of the most successful April Fools’ pranks and (perhaps unfairly) exposed the …
Lockdowns blues Anyone glancing at the latest business surveys would get the impression that the euro-zone economy is booming. The EC Economic Sentiment Indicator, published earlier this week, echoed the message from the PMIs, and shows activity …
Looming pick-up in inflation won’t faze the SNB Swiss inflation looks set to continue its upward trend over the coming months, but with temporary factors likely to fade in H2, and underlying price pressures likely to remain much weaker, this won’t change …
Inflation looks set to rise further in Germany than in most other euro-zone economies this year and we suspect that it will remain higher there after the pandemic is over. However, we doubt that this will stop the ECB from maintaining ultra-loose monetary …
31st March 2021
