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September the low point, but inflation will stay subdued Core inflation is likely to edge up from the record low to which it fell in September. However, weak aggregate demand will keep it very subdued for the foreseeable future. Headline and core …
16th October 2020
With the virus spreading rapidly, governments are ramping up their containment measures. The new restrictions will be more targeted, regional and time-specific than in the first wave, but they are still likely to cause a new contraction in the services …
14th October 2020
Industrial rebound slowing but not going into reverse The recovery in euro-zone industrial output has slowed but is not going into reverse. The impact of the second COVID-19 wave should be much smaller than the first and will be felt most in the services …
The slowdown in the pace of monthly GDP growth in Norway in August was driven in large part by a fall in consumer spending. The post-lockdown spending splurge on goods appears to have peaked before spending on services was strong enough to pick up the …
13th October 2020
Frustratingly low prices pressures point to further support down the line The larger-than-expected fall in Swedish inflation in September will only strengthen the hand of the dovish contingent of the Riksbank’s Executive Board. We think it is only a …
Data published by Eurostat yesterday underline that there was a large increase in labour market slack. Looking ahead, it is likely to continue to rise sharply. The euro-zone’s unemployment rate has remained very low this year in spite of the collapse in …
9th October 2020
Strong retail sales the outlier, not the norm On the face of it, normality appears to have returned to at least one part of the euro-zone economy. Data this week showed a strong rise in retail sales volumes in August, to 3% above their pre-virus level. …
Who’s afraid of the Big, Bad US Treasury? Thomas Jordan banged a familiar drum in a speech this week, yet again justifying the SNB’s FX interventions that have seen its balance sheet balloon over the past decade. He also stressed that the Bank’s must have …
August’s strong increase in industrial production in Italy is not as good as it first appears. The timelier surveys point to annual declines in output, and rising virus numbers present a growing threat. Industrial production in Italy jumped by 7.7% m/m in …
The account of the last ECB Governing Council meeting suggests that policymakers were in no hurry to increase the size of the PEPP. There has been more disappointing news on the economy since then, but on balance we still think the Bank will leave the …
8th October 2020
The further slowdowns in monthly GDP growth in Norway and Sweden in August support our view that it will take a long time for output to recover to pre-crisis trend levels anywhere in Europe. The 0.6% m/m increase in mainland Norwegian GDP in August was …
The reimposition of coronavirus restrictions has caused the recovery to stall – if not go into reverse in many countries – with France and Spain most affected. There are tentative signs that the number of new cases is beginning to slow again in Spain, but …
7th October 2020
We think car makers in the euro-zone will be able to keep pace with demand for new vehicles this year, despite having had to introduce social distancing measures to their production processes. Accordingly, we see little risk of the sharp rise in car …
Although the SNB meets the US Treasury’s criteria for a “currency manipulator”, we doubt this would deter it from intervening further in the foreign exchange market if required to keep the franc stable. New data detailing the SNB’s FX transactions confirm …
Recovery far from complete The small fall in German industrial production in August left it a long way below its pre-crisis level, and lagging the industrial rebounds elsewhere in the euro-zone. We think the sector will resume its recovery in the coming …
Recovery may be going into reverse The increase in retail sales to above their pre-crisis level in August overstates the strength of the recovery in household consumption. Spending on travel, hospitality and entertainment will have remained much weaker …
5th October 2020
Second wave peaking in France and Spain The new wave of COVID-19 poses a big risk to the recovery and may cause GDP to contract again in Q4. The worst hit area is the Madrid region of Spain, where the number of intensive care beds occupied by coronavirus …
2nd October 2020
Brighter outlook for the NOK next year Having fallen to four-month lows against the euro in late-September, the Norwegian krone and Swedish krona bounced back this week. While the NOK is vulnerable to falling further in the near term, we think that a …
Inflation to remain far below target even as temporary effects unwind September’s decline in euro-zone core inflation to a fresh record low was partly due to temporary factors that will be reversed in October. And the downward trend in core inflation this …
While it is not clear that inflation expectations are less well anchored than in the past, they are at a low level. With the actual inflation rate falling, this reinforces the case for further ECB policy easing. Christine Lagarde devoted several …
1st October 2020
Small rise a taste of things to come The small rise in the euro-zone unemployment rate in August suggests that the winding back of short-time work schemes is already starting to take its toll on the region’s labour market. With governments set to provide …
Rising order backlogs to sustain industrial rebounds While Swiss inflation has risen since reaching a trough in June, it is likely to stay very weak in the near term. Meanwhile, the positive set of September manufacturing PMIs from Switzerland and Sweden …
President Lagarde’s speech today suggests that she will argue for a higher, symmetric inflation target and a move towards a form of average inflation targeting as part of the ECB’s strategy review. All else equal, this should support continued ultra-low …
30th September 2020
Switzerland comparatively well placed The increase in the KOF Economic Barometer in September, to a fresh decade high, suggests that the Swiss economy gathered momentum going into Q4. While the second waves of virus cases in parts of Europe are a downside …
Although the Norwegian krone has been the worst performing G10 currency so far in 2020 (see Chart 1), we expect it to make up some lost ground in 2021 even if it falls a bit more in the near term. The US dollar rose sharply against most other G10 …
29th September 2020
The resurgence of COVID-19 in the euro-zone has hit Spain the hardest and hospital capacity there is under strain, most notably in Madrid. Restrictions have taken a toll on activity and stricter ones are likely to follow. So there is a serious risk that …
Euro-zone at risk of contraction The small improvement in the EC’s Economic Sentiment Indicator for September was slightly better than anticipated. However, the index remained at a low level, and we suspect that it has not accurately captured the negative …
Having instructed many firms to cease trading during the lockdowns, governments understandably pulled out all the stops to prevent them from going under. However, we expect this support to be gradually withdrawn, causing the number of bankruptcies to …
28th September 2020
Short-time work schemes are not being used as much as they were in the spring, but they still account for about 5% of the labour force. So as euro-zone governments reduce support for jobs (in the way that the UK government announced this week), …
25th September 2020
The Swiss head to the polls After a virus-imposed hiatus, the Swiss are set to resume doing what they love best this Sunday: voting. Five separate referenda will be held, covering a range of topics including whether the government should buy some new …
Risk of W-shaped recovery rising This week brought evidence that the economic recovery is grinding to a halt and that activity in the services sector is falling. And with the stringency of virus containment measures only going in one direction, there is a …
The surge in lending growth during and immediately after lockdowns is well and truly over. But with the authorities tightening virus containment measures again and signs that the economic recovery is grinding to a halt, we wouldn’t be surprised to see …
Some policymakers at the ECB have hinted recently that further policy loosening could be on the way. There is little to be gained from announcing an expansion to QE at this stage, but we wouldn’t be surprised to see the Bank make its TLTROs more generous, …
24th September 2020
The fact that policymakers at the SNB and the Norges Bank left policy settings unchanged this morning came as no surprise. Both banks are likely to leave policy unchanged throughout our forecast horizon and, in the case of the SNB, probably until at least …
Rebound has petered out The very small increase in the Ifo Business Climate Index for September is further evidence that the recovery has run out of steam. Germany’s export-oriented manufacturing sector is still expanding but this is likely to be offset …
The number of confirmed virus cases in the euro-zone has continued to increase rapidly in recent weeks and poses a growing threat to the economic recovery. Some countries, including Italy and Germany, have been little affected so far and the number of …
23rd September 2020
Virus fears and restrictions weigh on activity The further decline in the euro-zone Composite PMI in September adds to the evidence that the initial rebound in activity has already run out of steam. And with new restrictions being imposed throughout the …
Sweden has so far avoided a second wave of virus cases and the prospect of it sticking to its light-touch approach, rather than tightening restrictions in line with much of Europe, means that the risk of a renewed drop-off in economic activity in Q4 is …
22nd September 2020
Consumer caution to hold back recovery Even though virus cases are rising sharply and restrictions are being tightened, euro-zone consumer confidence rose in September. But we doubt this will be sustained. Further restrictions are being imposed and look …
The Riksbank’s decision to leave the repo rate on hold at zero this morning was never in doubt, but it left the option of a rate cut firmly on the table, linking it explicitly to moves in inflation expectations. We think it more likely than not that the …
“No change” three ways on the policy menu Central bankers will take centre stage next week, with the Riksbank kicking things off on Tuesday, and the SNB and the Norges Bank both set to make scheduled policy announcements within 30 minutes of each other on …
18th September 2020
A key assumption in our forecasts has been that there will not be a repeat of the spring’s strict nationwide lockdowns that would cause the recovery in economic activity to go into reverse. That assumption is looking a bit shakier in light of headlines …
If it is sustained for long enough, the policy stimulus being implemented in the euro-zone could eventually cause inflation to take off. However, we think it is more likely that policy is normalised as the crisis passes. The risk of an institutional slide …
17th September 2020
We expect the Swiss National Bank and the Norges Bank to both leave their policy settings unchanged next Thursday (24 th September). But while the former will no doubt sound as dovish as ever, Norwegian policymakers will probably further prepare the …
Core inflation to fall close to zero in September Euro-zone core inflation fell to a record low in August and we suspect that it will fall even further in September. Looking ahead, underlying price pressures are likely to remain weak. As expected, …
In contrast to the US where falling inventories may start to push up prices, euro-zone firms’ inventories suggest that near-term price pressures are weak. Euro-zone retail sales have recovered much more quickly than industrial production since lockdowns …
16th September 2020
The weak economic outlook has put the spotlight back on Spain’s property market. House price inflation was already slowing prior to the virus. But a big collapse in prices seems unlikely given that supply is not excessive, valuations do not appear …
15th September 2020
After a tweak-laden last policy meeting, the Riksbank is likely to maintain the status quo next Tuesday (22 nd September). While there is no burning platform for policy change, we think that the next move in interest rates will eventually be down. Recall …
