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Industry in top gear, as supply constraints come into view The strong set of manufacturing PMIs for February indicates that industry remains in rude health. That said, as elsewhere, there are signs of supply problems and rising price pressures. The …
1st March 2021
Not immune to the bond market rout As elsewhere, the sell-off in the bond market hit the headlines in Switzerland and the Nordics this week. In keeping with the trend over the past year or so, the Norwegian 10-year yield has tracked that in the US higher, …
26th February 2021
ECB tries to quash bond yield increases Euro-zone sovereign bond yields continued to rise this week in line with those elsewhere, as investors reassess the global inflation outlook and related prospects for monetary policy. While inflation has risen in …
The recent increases in real bond yields leave them still at low levels, but ECB policymakers nonetheless seem uncomfortable. Their verbal interventions have had little impact so far, so we think that there is a good chance that they will increase their …
Activity proving resilient to lockdown The 0.3% q/q expansion in Swiss GDP in Q4 was slightly better than expected and means that output was just 1.6% smaller than in Q4 2019. (See Chart 1.) Tighter virus-related restrictions and a renewed slump in the …
Renewed rise, but still depressed February’s renewed rise in the EC’s Economic Sentiment Indicator (ESI) for the euro-zone still left it at a depressed level by pre-pandemic standards and supports our view that activity will remain weak in Q1. Echoing the …
25th February 2021
The recent fall in the Swiss franc against the euro will be music to the SNB’s ears, and we think that there is plenty of scope for the currency to drift lower over the coming years. Having traded in a narrow range around CHF 1.08 over the past six months …
24th February 2021
We are raising our forecast for HICP inflation in Germany and expect it to peak at over 3.5% this year. But we doubt that this will prompt any policy tightening by the ECB because aggregate euro-zone inflation will stay much lower, and inflation will drop …
23rd February 2021
Inflation set to rise further this year but drop in 2022 January’s jump in inflation is likely to be followed by further increases to over 2% later this year. But we think that much of this is temporary and expect it to fall back sharply in 2022. The …
Manufacturing sector shrugging off lockdown The increase in the Ifo Business Climate Index in February suggests that the German economy is weathering the lockdown better than anticipated. It also points to some upside risk to our forecast that GDP will …
22nd February 2021
Borrowing costs on the rise Sovereign bond yields throughout the euro-zone rose sharply this week, raising questions about the outlook for growth and inflation. Ten-year German and Italian bond yields, for example, rose by 15bp and 20bp respectively. …
19th February 2021
Norges Bank set to blink first In case you missed it, we changed our view on the Norges Bank this week. Having previously forecast the key interest rate to remain on hold into 2023, we now expect the Bank to be the first advanced central bank to begin …
Supply problems pushing up prices February’s small increase in the Composite PMI left it still below 50 and consistent with our view that euro-zone GDP will probably edge down again in Q1. The survey also suggested that price pressures are building in the …
The account of the January ECB monetary policy meeting confirms that there was unanimous support for the policy agreed at the December meeting, when the PEPP envelope was increased to €1.85trn and more TLTROs were announced. We expect the ECB to stick to …
18th February 2021
Sustained pick up in sentiment some months away Euro-zone consumer confidence rose in February but it remained very low. Unless vaccine programmes accelerate to allow restrictions to be lifted soon, a sustained pick up in confidence remains months away. …
Rising above target, but only temporarily Swedish inflation rose sharply, as expected, in January and is set rise above the Riksbank’s 2% target in Q2. In any case, policymakers have signalled that they will look through any temporary breach of the …
We think the risk of a surge in unemployment and slump in household incomes later this year is quite low. Euro-zone governments are choosing to extend their job support schemes and will probably scale them back only gradually as the end of the pandemic …
17th February 2021
We forecast the Norges Bank to be the first advanced central bank to begin raising interest rates, in the second half of this year. This will further bolster the krone, which we expect to be the best-performing G10 currency in 2021, and will drive the …
After a relatively mild first wave of coronavirus, Portugal is now contending with the worst second wave in Europe. Another economic contraction in Q1 is all but certain and more delays to the vaccine rollout put the tourist season at risk. We forecast …
16th February 2021
Mario Draghi’s reputation and large majority put him in a strong position to promote euro-zone reform and he may have some successes in areas such as banking union and fiscal rules. But he will be constrained by his short period in office and the greater …
Jobs created despite lockdown and fall in GDP The preliminary estimate of euro-zone Q4 GDP was revised up slightly in today’s release, and confirmed that the hit to the economy from the autumn lockdowns was much smaller than in Q2 last year. Meanwhile, …
A digital euro is many years away, and the fact it is not intended to replace physical cash means that it won’t supercharge monetary policy as some may hope. However, it could become the norm for small cash transactions in the bloc over time and will at …
15th February 2021
Recovery stalling Industrial production edged down at the end of last year but held up reasonably well during Q4 overall. At the start of this year, we think output will have been roughly unchanged; manufactures seem to have adapted to lockdowns quite …
Comparatively well-placed The slightly smaller-than-expected 0.6% q/q increase in Danish GDP in Q4 left the economy 3.1% smaller than it was in Q4 2019. (See Chart 1.) Although activity is likely to slow in Q1 – on the back of tighter virus restrictions …
Higher oil prices will provide a boost to energy inflation in most countries over the coming months (see here ), including in Switzerland and the Nordics. In Sweden and Norway, the energy component will be additionally boosted by a spike in electricity …
12th February 2021
Attention shifts from repo rate to asset purchases As expected, the Riksbank left its repo rate and other policy settings unchanged on Wednesday morning. (See here .) The Bank was justifiably upbeat about near-term prospects for the economy given the …
New government in Italy The decision by the Five Star Movement to support Mario Draghi means that the coalition will have a huge majority and that no single party could collapse the government by pulling out. This should also make it easier to approve …
Norway still better placed than most The larger-than-expected increase in Norwegian mainland GDP in Q4 confirms that Norway is faring much better than its European peers. Activity is likely to have weakened at the start of 2021, but higher oil prices and …
The COVID-19 crisis has led to something of a paradox: Italy’s public debt ratio has risen, but the probability of default has fallen. That’s largely because BTP yields are likely to stay far lower than seemed plausible before the pandemic, meaning that …
11th February 2021
Spain’s economy had been set for a bright 2021 as the vaccine offered hope of a bumper summer tourism season. But the poor start to the rollout means that is now looking less likely. Moreover, the pandemic has exposed structural weaknesses that we think …
10th February 2021
This morning’s announcement that the Riksbank left its policy settings unchanged will have come as a surprise to no one. Policymakers are in no rush to raise the repo rate from zero, but there are likely to be differences in opinion about how to proceed …
Norwegian core inflation to fall back to target Core Norwegian inflation edged down in January and will continue to fall back this year as the inflationary boost from previous krone weakness fades. The Norges Bank will be in no rush to raise interest …
A debt write-off would wipe out much of the recent increase in public debt burdens and give the ECB more scope to expand its balance sheet in the future. But the fiscal benefits for euro-zone governments would be smaller than they seem at first sight, and …
9th February 2021
Manufacturing recovery stalling Data published today show that German industrial production was flat in December and we suspect that output will have fallen slightly since then as virus containment measures continued to take a toll and supply chain …
8th February 2021
Sequels all too often end up disappointing, so Mario Draghi will be hoping that his return to the euro-zone’s centre stage little more than a year after he stepped down as ECB President proves the exception to the rule. But if “saving the euro-zone” was a …
5th February 2021
Swedish economy proving resilient Data released this week have provided welcome signs that the Swedish economy is holding up better than we feared. The manufacturing sector remains in rude health, helped by a pick-up in global trade flows. While the …
Our forecast that the euro-zone economy rebounds strongly hinges on Covid-19 restrictions being lifted by the middle of the year. Unfortunately, vaccine supply shortages, distribution problems and concerns about variants could force governments to keep …
4th February 2021
The markets have reacted well to the news that Mario Draghi has been tasked with forming a new government. It is hard to think of a better candidate to lead Italy through a crisis, but we doubt that he would have as transformative an impact on the Italian …
The emergence of new Covid-19 variants, and euro-zone authorities’ slow progress with vaccinations, mean that there is a growing risk of another summer tourist season being lost. That would put a huge dent in the Greek economy and substantially delay the …
Consumption likely to fall in Q1 December’s data show that euro-zone retail sales rose at the end of last year. But restrictions have been tightened in many economies since then and non-essential shops remain closed in several countries, including …
The Riksbank is highly likely to leave its repo rate and other policy settings on hold next Wednesday (10 th February), but we expect it to beef up its asset purchase programme again before long. Recall that the Riksbank left its repo rate unchanged at …
3rd February 2021
Inflation jump partly due to temporary factors The jump in inflation in January reflects several one-off factors, some of which will be reversed in February. Headline inflation is likely to rise to around 2% by the end of the year, but will drop back next …
Slow start to the year, downside risks mounting The final Composite PMIs suggest that economic activity in the euro-zone contracted in January. We suspect that the economy has become more resilient to pandemic-related restrictions than it was a year ago, …
Germany’s state-level data show that the sharp increase in inflation in January resulted from higher energy prices and delays to winter sales, as well as changes to the weights of the HICP basket. There is no evidence of an increase in underlying price …
2nd February 2021
Downside risks growing Given that all of the major economies have already published their Q4 data, it came as no surprise that euro-zone GDP contracted by 0.7% q/q. With strict containment measures still necessary to control the virus, and vaccination …
Delayed winter sales drive up headline inflation The surprisingly big jump in France’s headline inflation rate in January was primarily driven by a surge in manufactured goods inflation as winter sales were postponed by two weeks. This will be reversed in …
Jobless rate unlikely to rise much this year The stability of the euro-zone’s unemployment rate at just 8.3% in December highlights once again the extent to which government policies have protected jobs during the pandemic. And as this support will …
1st February 2021
Industrial sector resilient at the start of the year The strong set of January manufacturing PMIs from Switzerland and the Nordics indicates that industry continued to cushion the blow from virus restriction-driven declines in services activity at the …
January’s surprisingly large increases in inflation in Germany and Spain were due to a range of factors, including a rise in VAT, higher energy and holiday prices, and methodological changes. As a result, inflation is likely to be higher than we had …
29th January 2021
No sooner had we put the final touches to our quarterly Outlook than some of the downside risks to our forecasts have begun to materialise. Our prediction of a brisk recovery in GDP beginning in the second quarter was based on two assumptions: (i) that …
