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Swiss recovery shifts into reverse The plunge in the Swiss KOF Economic Barometer in January, from 104.1 in December to 96.5 (well below even our below-consensus forecast), suggests that the reintroduction of a nationwide lockdown is starting to bite, and …
29th January 2021
Resilience in Q4 will not last Confirmation that Germany avoided a contraction in GDP in Q4 last year is of little comfort given that its economy will almost certainly shrink in Q1 this year. A strong recovery is still likely further ahead, but the slow …
A better-than-expected end to a terrible year Tough restrictions imposed in France and Austria last autumn to curb the spread of COVID-19 caused both countries’ GDP to fall in Q4. Spain’s laxer approach meant its economy actually grew. But for all three, …
Methodological change may boost inflation sharply for a year The jump in German HICP inflation appears to reflect methodological changes as well as the VAT hike. If a similar approach is adopted throughout the euro-zone, which at face value seems likely, …
28th January 2021
Economy to contract again in Q1 January’s fall in the EC’s Economic Sentiment Indicator (ESI) for the euro-zone supports our view that the economy will contract again in Q1. The survey also suggests that inflationary pressure remains absent. With the …
Bucking the weak trend at the start of 2021 The rise in Sweden’s Economic Tendency Indicator (ETI) in January was a welcome surprise and shows that the manufacturing sector remains in rude health. That said, retail is struggling, and with deeper …
Having experienced some of the smallest falls in output in Europe in 2020, GDP in Switzerland and the Nordics is likely to rise back to pre-virus levels in H2 2021 – about a year ahead of the euro-zone. As elsewhere in Europe, the pace of vaccine …
27th January 2021
Weak start to the year The fall in the headline Ifo Business Climate Indicator for January is consistent with our view that, having proved resilient in Q4, Germany’s economy will contract in Q1. Tougher Covid-19 restrictions are beginning to bite and may …
25th January 2021
The number of new Covid-19 cases is surging once again in Spain and, with tougher measures looking inevitable, this will weigh heavily on economic activity in Q1. Things should improve later in the year (perhaps dramatically), but only if the vaccination …
22nd January 2021
It is not surprising that investors interpreted the ECB press conference this week as being slightly hawkish. After all, policymakers seem content with preserving the current level of financial conditions, despite their forecasts suggesting that this will …
While yesterday’s ECB policy statement and press conference left many investors with the impression the Bank may be willing to tolerate higher peripheral bond yields, we doubt that this is the case. Either through words or action, the Bank is likely to …
Sweden extends (but doesn’t tighten) restrictions Although the number of new daily infections in Sweden has come down over the past week, it remains high by Nordic standards. It is therefore no surprise that the Swedish government announced a two-week …
A weak start to 2021 The renewed decline in the Composite PMI in January confirms that the tighter measures imposed are taking their toll on the economy and that services are bearing the brunt. With restrictions unlikely to be lifted any time soon, the …
As expected, the ECB left its policy settings unchanged today and, given the flexibility of its current policy of implicit yield curve control, will probably make no changes until the second half of the year. However, we suspect that the Bank will allow …
21st January 2021
Overview – The vaccine rollout is likely to make enough progress for most pandemic-related restrictions to be lifted in the spring. If so, we think euro-zone GDP will regain its pre-pandemic level by the middle of next year, with Germany getting there …
As expected, the Norges Bank left its policy rate on hold at a record low of zero once again this morning and reiterated that it “will most likely remain at today’s level for some time ahead”. This supports our view that, while we expect Norway to be …
Inflation to rise but stay well below target December’s final HICP release shows that core inflation remained very weak across the board at the end of last year, with no signs that prices pressures are building. Inflation will increase in the coming …
20th January 2021
Tighter lending conditions a concern for the ECB The Q4 Bank Lending Survey revealed that the demand for bank credit fell at the end of last year, and banks tightened their lending standards as they became more worried about the economic outlook. This …
19th January 2021
In contrast to the relentlessly grim epidemiological numbers, the economic data for the euro-zone published this week have been fairly positive. The 2.5% m/m increase in euro-zone industrial production in November points to output rising in Q4, helping to …
15th January 2021
A strong Q4 & a tough Q1 This week’s data from Sweden and Norway add to the signs that both economies ended Q4 on a decent note and outperformed even the best-performing major euro-zone economies in 2020. Mainland GDP in Norway contracted by less than …
The latest data suggest that activity was more resilient in Q4 than we had previously feared, with GDP in Norway and Sweden likely to have grown relative to the previous quarter, for example. That said, mobility data indicate that retail activity was hit …
14th January 2021
Governing Council under no pressure to loosen policy further… …but will commit to keeping financial conditions loose for as long as needed. Main risk is that the lockdowns are extended well into the second quarter. Having adjusted their policy settings in …
The Norges Bank will almost certainly leave its key interest rate on hold at zero next Thursday, but there is an outside chance that it could start to re-tighten macroprudential policy to tame the housing market. Having slashed the policy interest rate by …
Economy to rebound rapidly from Q2 onwards News that German GDP contracted by 5.0% in 2020 confirms that it withstood the lockdown well in Q4. It now seems likely that GDP will decline in Q1 this year, but it should expand rapidly after that as the …
France’s tight restrictions are set to be in place for at least another month or two, so GDP will not recover strongly during Q1. However, although the slow start to the vaccine rollout poses a downside risk for 2021, we think the pace will pick up enough …
13th January 2021
Our working assumption is that the vaccine rollout proceeds fast enough for governments to start lifting restrictions in April and that the majority are lifted during May and June. This Update sets out these assumptions in more detail and discusses the …
Industry held up well in Q4 November’s 2.5% monthly increase in euro-zone industrial production was almost entirely due to a huge increase in Ireland. Excluding Ireland, production was roughly flat on the month. Nevertheless, the timelier surveys suggest …
If euro-zone households spent all of their forced savings from last year, it could provide a boost to GDP growth in 2021 of as much as 3%. In practice, we doubt that it will be anything like that large. Instead, we think that only some of these savings …
12th January 2021
Norway to remain ahead of the pack The smaller-than-expected fall in mainland Norwegian GDP in November shows that activity was reasonably resilient to tighter virus-related restrictions and was well placed coming into 2021. While Sweden also probably …
Norwegian inflation to fall sharply this year While core Norwegian inflation edged further above target in December, it is set to fall back swiftly this year and so the Norges Bank will be in no rush to raise interest rates. The rise in Norwegian headline …
11th January 2021
Q4 not as bad as first feared… The manufacturing PMIs from December (released on Monday morning), suggest that the industrial sectors in Switzerland and Sweden ended 2020 on a high, helped by robust demand from Asia. (See here .) The Swiss PMI rose to a …
8th January 2021
The number of new coronavirus cases came down in many countries before Christmas as a result of the tighter restrictions in place. But since then, things have taken a turn for the worse. New cases have been increasing at the beginning of the year in …
Resilient in Q4 but likely to contract in Q1 German manufacturers withstood the restrictions imposed in November much better than many feared, meaning the economy almost certainly expanded in Q4 last year. However, we suspect that it will contract in Q1 …
The extension of lockdowns has dashed hopes of an early rebound in economic activity. Instead, the economy is likely to contract in the first quarter of this year. After falling quite steeply at the end of last year, the number of new virus cases in the …
7th January 2021
We expect both the Swedish krona and the Norwegian krone to appreciate against the euro and the dollar in 2021. However, in contrast to 2020, we expect the NOK to outperform the SEK slightly this year. The fortunes of the Swedish krona and Norwegian krone …
While it’s still early days, the underwhelming start to vaccinations in mainland Europe lends support to our view that governments won’t lift most of the restrictions until May/June (see here ), and the uneven start suggests that some countries will make …
Q4 not as bad as we feared, but Q1 will be worse than expected Activity data published this morning suggest that the euro-zone economy performed better in Q4 than we had anticipated. But the recent extensions of lockdowns make it more likely that the …
Euro-zone core inflation is likely to rise this year as the temporary VAT cut in Germany expires and last year’s sharp falls in holiday and clothing prices are reversed. However, the inflation rate will remain very low, and we do not expect any sustained …
6th January 2021
Weak December bodes ill for start of 2021 The downward revision to the euro-zone’s Composite PMI for December suggests the economy ended 2020 on a slightly weaker note than previously thought. With restrictions being extended and tightened in many …
The lockdowns implemented at the end of last year did not lead to another surge in bank lending, probably because they were less strict and more focused on limiting social activity. But if lockdowns are extended or made more draconian, firms’ demand for …
5th January 2021
Deflation on the way out, but SNB will keep policy unchanged Swiss inflation is likely to climb out of deflationary territory over the coming months. However, it is still set to remain very weak over the coming years, and does not change the picture for …
The virus data for the holiday period in the euro-zone are not as alarming as those for the UK, but they will force governments to extend and intensify restrictions in the coming weeks. As a result, economic activity looks less likely to pick up in Q1 …
4th January 2021
Industrial sector carried momentum into 2021 The strong set of December manufacturing PMIs from Switzerland and the Nordics indicates that industry started 2021 on the front foot, supported by robust activity in Asia. This bodes well for Q1 and will have …
Yesterday’s approval of the first vaccine by European authorities marked the start of the roll-out of COVID-19 vaccines in the EU, which we expect to lead to a lifting of restrictions in Q2. However, the gradual pace at which production is being ramped …
22nd December 2020
Blue Christmas Euro-zone consumer confidence rose in December despite the tightening of virus containment measures in many countries. But it remained very low, and with the virus spreading quickly and a new threat emerging from the UK virus mutation, …
21st December 2020
US Treasury not on the SNB’s Christmas card list The SNB’s final policy meeting of the year (see here ) was overshadowed by the news on Wednesday that the US Treasury designated Switzerland, along with Vietnam, a “currency manipulator” in its latest …
18th December 2020
With this being our final Weekly of 2020, it seems like a good opportunity to cast an eye back over this year, and draw some lessons for next year too. Lesson 1: acknowledge the uncertainty We aren’t going to be too harsh on ourselves for not seeing the …
