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Wage growth set to collapse in Q3 The jump in nominal hourly labour costs growth in Q2 is hardly a sign of a healthy labour market as total hours worked slumped by even more than employee compensation. The pick-up in activity since the end of the …
15th September 2020
Pace of rebound slowing The further increase in industrial production in July confirmed that the sector is continuing to recover. But output is still some way below its pre-crisis level and the pace of the rebound has slowed. We doubt that industry will …
14th September 2020
Given Norway’s decision to re-open its economy comparatively early, its post-lockdown experience has been watched closely for clues as to how other economies could expect to fare. The latest monthly data showed that mainland GDP continued to expand in …
11th September 2020
Despite its recent rally, the euro is not particularly strong in our view, and we think that it could well rise further over the next couple of years. Since its lows in mid-March, the euro has gained about 10% against the US dollar, rising from $/€1.06 to …
Sweden’s virus approach may be bearing fruit Interpreting Covid data is of course part science, part art, but the fact that confirmed virus cases per capita in Sweden fell below those in its Nordic peers in early-September appears to vindicate Sweden’s …
Exaggerated worries about the euro After more than two years when the exchange rate barely featured in ECB policy debates, the euro has been in the limelight this week. Prior to the ECB policy meeting, there was a growing expectation that the Bank would …
While no policy change was expected today, President Lagarde used the press conference to convey a slightly less gloomy message about the economy. She also dampened expectations for an early increase in the already-substantial PEPP envelope or for any …
10th September 2020
While the euro’s recent appreciation has generated a lot of attention, it is in fact close to its historical average by most measures. So while ECB policymakers may note at today’s press conference that the exchange rate influences their economic …
Norwegian inflation pressures set to ease before long Signs of rising domestic price pressures in Norway raise the chance of a hawkish shift by the Norges Bank at the next meeting. However, with imported price inflation set to peak soon, and services …
Investment at the forefront of Q2 decline, slow recovery ahead The third estimate of euro-zone GDP showed that the plunge in economic activity in the second quarter was broad-based, with investment and exports faring particularly poorly. The rapid rebound …
8th September 2020
Recovery shifts down a gear Data released this morning show that the rebound in economic activity in Norway lost a bit of steam in July, which is in keeping with signs elsewhere in Europe. Nonetheless, given that the plunge in output in Norway was much …
Industrial rebound slowing German industry eked out a meagre increase in production in July, leaving output still well below its pre-crisis level. Production is likely to have increased again in August, but we now seem to be past the period of rapid …
7th September 2020
The rebound phase has now come to an end. Retail sales declined in July and both the business surveys and high frequency data suggest that economic activity levelled off in August. Of course, the initial rapid pace of recovery was never going to be …
4th September 2020
Recovery losing pace and inflation falling Data published this week add to the evidence that the economic recovery is losing momentum, particularly in the periphery. Online retail sales fell in July for the second consecutive month, but this time this …
Riksbank still biding its time Policymakers at the Riksbank won’t admit it, but they will be feeling pretty comfortable with their position, all things considered. After all, the further increase in the services PMI in August suggests that activity in the …
No major policy changes on the cards at next week’s Governing Council meeting. Recent developments mean that the ECB will stick firmly to its dovish course. We think the Bank will eventually add to its planned emergency asset purchases. The ECB will not …
3rd September 2020
National statistics offices in the euro-zone have taken different approaches to estimating public sector services output during the lockdowns this year. This means that the extent of the falls in GDP may not be strictly comparable, notably for France. …
More evidence that the rebound is over The recovery in euro-zone retail sales ended in July as sales fell slightly. And final PMIs for August suggest that the economy is growing only slowly, while Italy and Spain’s recovery may have gone into reverse. We …
Ongoing period of deflation limits the SNB’s options The current bout of deflation in Switzerland is likely to persist well into next year, and will continue to be a headache for the SNB, particularly given the recent rise in the franc against the US …
Employment rose in Italy for the first time in five months in August, but this is unlikely to be the start of a trend. With the short-time work scheme becoming less generous and then expiring at the end of the year, we expect employment to fall further …
2nd September 2020
The Fed’s switch to an average inflation targeting regime and revised interpretation of its full employment goal are a response to challenges which are common to many economies, including the euro-zone. We think the ECB will move in a similar direction …
1st September 2020
Core inflation to remain very weak Euro-zone core inflation fell to a record low of 0.4% in August and we think that it will remain around that level for the next year at least. Meanwhile, labour market data also published today show that there has been …
Signs of rising manufacturing backlogs bode well for the near term The positive set of August manufacturing PMIs from Switzerland and the Nordics suggests that the recovery in industrial activity continued over the summer. While the fortunes of industry …
Euro-zone governments have been understandably keen to avoid repeating the blanket lockdowns of earlier this year in response to the resurgence in coronavirus cases over the past month or so. Low hospitalisation rates have allowed policymakers to focus on …
28th August 2020
Nordics top of the league in H1… The Nordic economies emerged at the top of the economic league in Europe in H1, with comparatively small declines in output. (See here .) The second reading of Swedish Q2 GDP, released this morning, shows that the …
Rebound may have run its course The increase in the EC’s Economic Sentiment Indicator (ESI) for August was smaller than in the previous two months and left it well below its February level, while the index for Spain actually fell. The euro-zone’s economic …
Broad money growth accelerated to a 12-year high in July, but we think that this will prove to be temporary and is not likely to push up inflation. Meanwhile, growth in bank lending to firms has returned to more normal levels, while consumer credit …
27th August 2020
Recovery losing pace The rise in Sweden’s Economic Tendency Indicator (ETI) in August was smaller than in the previous two months and suggests that although the recovery there continued in Q3, it may already be slowing. Meanwhile, the sharp rise in retail …
Swiss economy on track for a comparatively modest drop in GDP this year Data released this morning show that the Swiss economy weathered the crisis comparatively well in the first half of the year. While its fortunes are closely tied to those in the …
While Sweden’s economy got off relatively lightly in H1 thanks to the light-touch lockdown, Norway and Finland saw even smaller falls in activity at a lower human cost. Nonetheless, the success of the Nordics does not offer any obvious lessons for those …
26th August 2020
Strong rebound in Q3 is already slowing The second estimate of Q2 German GDP confirms that all elements of domestic demand except government spending fell sharply. A big rebound in Q3 is already baked in the cake, but survey evidence, including from the …
25th August 2020
Norway outperformed light-touch Sweden in H1, despite locking down While Sweden’s light-touch response to Covid has hogged the headlines, data released this morning show that the Norwegian economy outperformed its Nordic cousin in the first half of the …
France’s virus-related slump in the first half of 2020 rivalled the big falls in GDP in Italy and Spain. But its recovery should be stronger because working from home is more common, the economy is less dependent on international tourism, and the …
24th August 2020
Rebound already fading With the number of confirmed virus cases rising and employment support schemes being run down, it comes as no surprise that the EC’s measure of consumer confidence levelled off in August. That is consistent with other evidence that …
21st August 2020
Are virus ripples turning into waves? The upward trend in daily virus infections in the euro-zone is partly due to increased testing, but the proportion of tests coming back positive is also on the rise. It seems likely that there will be further …
“Two-speed” Swiss industry finds reverse gear The belated release of Q2 industrial production data from Switzerland on Thursday laid bare the stark divergence in fortunes within the sector. Total manufacturing output dropped by 8.3% q/q in Q2, which was …
Recovery petering out The fall back in the euro-zone Composite PMI in August suggests that the initial V-shaped rebound following the lifting of the lockdowns is already fizzling out. We suspect that activity will remain below pre-crisis levels for at …
The account of the ECB’s last monetary policy meeting suggests that there was a strong consensus in favour of the current policy settings. Absent a big surprise in the economic data or fresh financial market turmoil, the Bank is likely to leave policy …
20th August 2020
We think that economic activity in Italy is still nearly 10% below its pre-crisis level. Even without a second wave, the economy will remain weak and the budget deficit wide for several years. Nevertheless, the near-term outlook is not as bad in Italy as …
This morning’s decision by the Norges Bank to leave its key interest rates on hold at zero was never really in doubt. We still think it more likely than not that the Bank will leave rates on hold throughout our forecast horizon. Today’s announcement was …
Jump in core inflation a one-off July’s jump in euro-zone core inflation was entirely due to delayed summer sales, so it should reverse in August now that those sales have begun. Meanwhile, social distancing rules appear to have had a limited effect on …
19th August 2020
Virus numbers have risen sharply in the past month, but the second wave has different characteristics from the first. It is concentrated in younger people, so hospitals are not being put under such pressure. One consequence is that the restrictions being …
Denmark’s lockdown pays off … According to the GDP indicator released on Friday, the Danish economy contracted by 7.4% q/q in Q2, broadly in line with our forecast. While this was its biggest decline since data began in the 1990s, it was a far cry from …
14th August 2020
Two-speed recovery This week saw more evidence of the extent of the rebound as euro-zone industrial output rose by 9.1% in June. However, this left it 11.4% below its pre-coronavirus level in February – a situation which was similar in all the major …
Recovery underway but at different speeds The preliminary estimate of euro-zone GDP was unchanged in today’s release, but new data showed that the variation between countries was, if anything, larger than previously thought, while there was a record drop …
Compared to many of the larger euro-zone countries, the coronavirus remains relatively well under control in the Nordic countries and Switzerland. With the exception of Denmark, there are at this stage no signs of a second wave. This in turn is helping to …
13th August 2020
Short-time working has been widely used during the pandemic to stop unemployment soaring. But even with financial help from Brussels, the mounting costs will force the more fiscally constrained countries, primarily Italy and Spain, to wind back their …
The Norges Bank will almost certainly leave its key interest rate on hold at zero next Thursday (20 th August), and we expect it to reiterate that it is in no rush to tighten policy. Having cut its key policy interest rate to a record low of zero at its …
Sweden’s contrary policy response to the pandemic reduced the depth of its economic slump at the expense of worse public health outcomes. But the data so far suggest that its experience stands out less than one might have expected, both in terms of …
12th August 2020
Recovering but a long way to go The second successive chunky increase in industrial output in June left it a long way below normal. Output will have risen more slowly in July, and we expect it to stay subdued during the next two years. Euro-zone …
