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News that German consumers went on a spending spree in May has raised hopes that the recovery will be V-shaped after all and that things will soon be back to normal. We think that only the first part of this is true. The rebound will look like a V, at …
3rd July 2020
Activity increasing but job prospects look grim The sharp increases in the euro-zone PMIs in June suggest that activity is bouncing back quite quickly, but remains far lower than before the crisis. The PMIs also point to continued declines in employment. …
Bigger rises in unemployment lie ahead The trivial rise in unemployment in the euro-zone reflects the success of short-time working schemes in protecting jobs but also an increase in “inactivity” as people have been unable to look for work. As these …
2nd July 2020
Switzerland set for a prolonged period of deflation The lack of price pressures in Switzerland is nothing new, but will ensure that the SNB remains poised to combat bouts of upward pressure on the franc for the foreseeable future. The headline inflation …
The Riksbank has put its money where its mouth is when it comes to expanding its balance sheet, but in our view all roads still lead to a return to negative interest rates, either in late-2020 or early-2021. While the Riksbank’s decision to leave the repo …
1st July 2020
Swiss manufacturing struggling to shake off crisis The manufacturing PMIs from June add to the evidence that activity in Sweden and Norway has recovered comparatively quickly, but suggest that Swiss manufacturing is taking longer to find its feet. The …
Inflation to remain far below target The increase in euro-zone headline inflation in June was entirely due to higher energy inflation, while the core rate edged down and looks likely to fall further over the rest of the year. Headline inflation rose …
30th June 2020
Barometer underwhelms but retail sales bounce back The underwhelming increase in the KOF Economic Barometer in June is at odds with the chunky rise in the euro-zone PMIs. Nonetheless, the surge in Swiss retail sales in May shows that the economy has …
While the proposed joint EU fiscal response has been hailed by some as a “Hamilton moment”, the central budget will be just one-quarter as large as a share of GDP as US federal firepower was in the 1790s. In the absence of greater tax-and-transfer powers, …
29th June 2020
Confidence rebounds but still weak The increase in the EC’s Economic Sentiment Indicator for June was the largest one-month rise on record. However, it was not as big as expected and leaves the index consistent with activity remaining well below its …
It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to …
Nordic consumers splash the ‘cash’ Retail sales data for May released this week show that consumers in the Nordics have splashed the cash since lockdowns have been eased (figuratively speaking, of course, given that cash usage is increasingly rare in …
26th June 2020
This week kicked off with growing fears of a second wave in Germany, as the all-important R number jumped from around 1 to almost 3 last weekend. But as we argued here , the localised nature of the outbreaks and better monitoring mean that there is …
The current burst of bank lending suggests that governments’ loan guarantees and the ECB’s TLTROs are having the desired effects. Now that economies are re-opening, corporate revenues should begin to recover, making firms less reliant on state-backed …
The ECB has used the minutes of this month’s policy meeting to try to defuse the dispute in Germany over the legality of its asset purchase programmes. Helped by the Bundesbank, this should be enough to smooth things over for now. But future court cases …
25th June 2020
While the Greek economy is set to slump this year, it is becoming increasingly clear that the drop in activity will be much less severe than we previously anticipated. We now think that the Greek economy will shrink by “only” 8% or so this year. At the …
While we still expect the Riksbank to cut its repo rate back into negative territory later this year, it is set to keep its powder dry at its policy announcement next Wednesday (1 st July). Recall that the Riksbank left its repo rate unchanged at zero …
24th June 2020
Euro-zone countries seeking to avoid a surge in unemployment have sought to replicate Germany’s short-time working scheme that served it well during the global financial crisis. Germany’s experience suggests that while euro-zone unemployment will probably …
Downturn shorter than feared but will still cast a long shadow The Ifo for June echoes the message from the PMIs published yesterday that the rebound in Germany has been a little faster, and the slump in GDP probably smaller, than we had anticipated. …
Rapid recovery but still below pre-virus levels The rise in the euro-zone flash Composite PMI in June confirms that economic output in the region is continuing to recover rapidly from April’s nadir as restrictions are progressively eased. But economic …
23rd June 2020
More evidence of a rebound in consumption Consumer confidence in the euro-zone increased for the second consecutive month in June, adding to the evidence that household consumption rebounded sharply after the lockdowns were eased. The rise in the EC …
22nd June 2020
The increase in coronavirus cases in Germany is a reminder that the virus has not been eradicated and suggests that local restrictions may be re-imposed periodically in the coming months. But for now, the increase seems too small and localised to pose a …
Shallower downturns forecast in the Nordics Amid increasing signs that the Nordic economies have weathered the Covid crisis better than most (see here ) we have upgraded our forecasts for GDP growth over the coming years. (See Table ) As flagged in an …
19th June 2020
TLTROs raise concerns about the doom loop There was record demand for the ECB’s ultra-cheap Targeted Longer-Term Refinancing Operations this week, at €1.3 trillion. (See here .) This is not surprising given that the interest rate on these loans will be …
If the recent increase in US retail sales is anything to go by, consumption in the euro-zone will have recovered sharply now that the lockdown restrictions have been eased. Indeed, evidence from French and Spanish bank card transactions data suggest that …
18th June 2020
Data published today show huge demand for the ECB’s targeted lending to commercial banks. So far, these operations and government loan guarantees have been successful in raising bank lending to the private sector, and there is scope for the ECB to make …
This morning’s decisions by the SNB and the Norges Bank to leave interest rates on hold at -0.75% and zero respectively were never really in doubt. Both banks are set to leave policy unchanged throughout our forecast horizon and, in the case of the SNB, …
There are increasing signs that the Swedish economy has weathered the crisis better than we first feared. Accordingly, we now expect GDP to contract by ‘only’ 2.5% this year (previously -7.5%). It has been evident for some time that Sweden’s economy would …
16th June 2020
Perverse surge in hourly wage growth won’t last beyond Q2 The surge in nominal hourly labour costs growth in Q1 primarily reflects a collapse in hours worked as lockdowns restricted economic activity at the end of the quarter. This is likely to be …
The EU’s moves towards an unprecedented joint fiscal stimulus and the ECB’s commitment to buy unlimited amounts of government debt have greatly reduced the risk of a euro-zone debt crisis in the coming year or two. However, these measures are intended to …
15th June 2020
The latest high frequency data indicate that economic activity in the Nordic economies has continued to recover in recent weeks, with trips to shops and restaurants now close to pre-crisis levels in Sweden, Denmark, and Norway. (See Chart 1.) Sweden’s …
12th June 2020
Economic activity fell by about a quarter This week brought yet more evidence of the severity of the collapse in output, as well as the variation between countries. The third estimate of euro-zone GDP in Q1 showed that the economy contracted by 3.6% q/q. …
Sweden is getting off comparatively lightly The 11% peak-to-trough drop in Swedish household consumption between February and April puts paid to any notion that Sweden has escaped unscathed following its light-touch lockdown. Nonetheless, as grim as they …
A long, slow climb from the April trough The collapse in euro-zone industrial output in April will have been partly reversed in May and June, but the recovery will be much more gradual than the slump. Nobody would dispute Eurostat’s observation that the …
The Swiss National Bank and the Norges Bank are all but certain to leave their policy settings unchanged at the scheduled announcements next Thursday (18 th June) and for the foreseeable future. Recall that the SNB left interest rates on hold at -0.75% at …
11th June 2020
TARGET2 imbalances are set to rise to record levels over the year ahead on the back of the ECB’s planned wave of asset purchases. While this may be dismissed by some as a benign and technical side-effect of the ECB’s policies, it would indicate that, …
Pick-up in Swedish inflation not a game changer The rise in Swedish inflation in May ties in with signs that the economy has got off comparatively lightly by virtue of its light-touch lockdown. That said, the May figure was skewed in part by temporary …
Currency-driven inflation boost to fade in H2 Recent falls in the krone contributed to the pick-up in core inflation in Norway in May, but this effect is likely to fade in H2. Accordingly, the Norges Bank will be in no rush to tighten monetary policy. The …
10th June 2020
As the crisis in Italy escalated, record numbers of disillusioned jobseekers dropped out of the labour force, causing the unemployment rate to fall. Now that the lockdown is being lifted and activity is recovering, many of those people should return to …
9th June 2020
GDP will recover slowly after huge fall in Q2 The sharp fall in GDP in Q1, confirmed by data released this morning, will pale in comparison to the contraction in Q2. We think it will then take several years for the economy to return to its pre-crisis …
April the weakest month, followed by slow recovery The slump in April was even bigger than the previous record set only a month ago. While the data should improve from May onwards, output probably won’t get back pre-coronavirus levels for at least two …
8th June 2020
SNB breathes a sigh of relief as the franc slides The positive policy moves out of Europe – including the ECB’s decision yesterday to increase the size and duration of its Pandemic Emergency Purchase Programme – have reinforced the sense that policymakers …
5th June 2020
The economic data released this week have simply confirmed what we already knew: that April was completely catastrophic for the euro-zone economy but that there has since been a gradual resumption in activity throughout the region. Euro-zone retail sales …
The latest high frequency data show that economic activity has picked up a bit in the past few weeks. Consumers have been returning to the shops and restaurants. (See Chart 1.) But some sectors such as tourism and hospitality are yet to get back on their …
The ECB’s decision to increase the size and duration of the PEPP should sustain the positive sentiment towards the euro-zone in the near term and reinforce the sense that, for now, European policymakers have got their act together. But more difficult …
4th June 2020
Things can only get better April’s euro-zone retail sales data confirm that household consumption growth took a beating at the start of the second quarter. There should be a sharp, though partial, rebound in May as lockdowns were eased, followed by a …
Swiss deflation here to stay; Sweden set to outperform The further decline in Swiss inflation in May came as no surprise, but April’s private sector production data from Sweden add to signs that the economy has reaped some benefit from its light-touch …
Disruption to supply chains and depressed demand mean that euro-zone goods exports will slump this year, hitting open economies such as the Netherlands and Germany the most. But the hit to services exports, notably tourism, is likely to be bigger, leaving …
3rd June 2020
Unemployment set to rise steadily, but not as far as we had feared The remarkably small increase in unemployment in the euro-zone reflects the success of the government job subsidy schemes and an exodus from the labour force in Italy. We suspect that the …
Limping out of lockdown The final Composite PMIs add to the evidence that economic activity picked up in May, but it remains well below normal. They also point to substantial downward pressure on inflation. The euro-zone Composite PMI for May was revised …
