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A big fall in output, but Switzerland is comparatively well placed The sharp fall in Swiss GDP is Q1 was in line with the general pattern seen in other countries, and Q2 is set to be much worse. However, now that lockdown restrictions have been eased, we …
3rd June 2020
The ECB has been purchasing a disproportionate share of Italian government bonds, but they are less heavily skewed towards Italy than we had anticipated. This in turn means that there may be less risk of a renewed flare-up of tensions over the ECB’s asset …
2nd June 2020
The gradual recovery is underway The partial recoveries in the manufacturing PMIs in May offer encouragement that activity is recovering now that lockdowns have been eased. (See Chart 1.) The small pick-up in the Swiss manufacturing PMI in May, from 40.7 …
Inflation expectations are not always a good leading indicator of inflation. However, the decline in most measures of inflation expectations in the past two months may be a cause for concern at the ECB. Rather than being a guide to future inflation, …
1st June 2020
A Hamilton moment? The main event this week was the publication of the EC’s blueprint for joint borrowing, building on last week’s Franco-German proposal. (See here .) This has been hailed by some as a “Hamilton moment”, referring to the 1790 decision by …
29th May 2020
Skingsley leaves the door open to a repo rate cut This morning’s upward revision to Swedish Q1 GDP, from the initial estimate of -0.3% to +0.1%, adds to the evidence that the country has enjoyed some economic benefit from its light-touch lockdown. That …
Disinflationary pressures mount The further fall in euro-zone inflation in May took the headline rate to within a whisker of zero and downward pressure on prices is set to persist while demand remains exceptionally weak and unemployment rises. The …
Bank lending to firms jumped again in April, suggesting that government loan guarantees and cheap ECB funding for banks are having the desired effects. But the central bank’s work is far from done. We expect it to announce a further increase in its …
The ECB is likely to increase the PEPP by a minimum of €500bn next week. Policymakers may also say the PEPP will run until at least mid-2021. We no longer anticipate a further reduction in the deposit rate. Policymakers have signalled their intention to …
28th May 2020
While Sweden’s economy has fared better than the worst-affected countries, as a result of its comparatively light-touch lockdown, it is still set for a year to forget. We expect the decline in GDP this year as a whole to be in a similar ballpark to that …
The euro-zone is not suffering from excessive leverage among banks and households, or slow and counter-productive responses from policymakers, which held back its recovery from the last two crises. But the current downturn still throws up some of the same …
The prospect of a joint European fiscal response has helped to ease upward pressure on the Swiss franc and means that there is light at the end of the tunnel for the SNB following its recent bout of FX interventions. While monetary policy will remain …
Business confidence remains extremely low The very small increase in the euro-zone Economic Sentiment Indicator in May adds to the evidence that the euro-zone economy bottomed out in April, but that activity is recovering only very slowly. While the …
The EC fiscal proposal confirms that Europe’s fiscal response will be large enough to help to ease concerns about how the current crisis will be financed. But the details are yet to be finalised, and the money will probably not start to flow until next …
27th May 2020
Policymakers have more work to do The account of April’s ECB meeting, published today, shows that the Governing Council has left the door wide open to further monetary policy support. As a reminder, at that meeting the Council made the Targeted …
22nd May 2020
Sweden faces some time out in the cold Norway, Denmark and Finland are reportedly considering keeping their borders with Sweden closed, even as and when they open them to others, because of the higher prevalence of Covid-19 infections there following its …
Economic activity in Denmark appears to have clawed back about one-third of its virus-related fall since the government started to ease restrictions in mid-April, with activity probably about 7.5% below ‘normal’ levels. At face value, the Danish …
21st May 2020
Activity still well below virus levels The partial rebound in the euro-zone Composite PMI in May suggests that the economy is now on a slow road to recovery. But even as lockdown measures are gradually lifted, the level of activity is likely to be well …
Slight improvement in confidence Consumer confidence rose slightly in May, suggesting that households are a little less depressed about their prospects and the wider economic outlook than they were in April. Nonetheless, the index remains very low and …
20th May 2020
Public debt ratios are set to rise sharply in all euro-zone countries this year but in most cases they should then start to fall again. The exceptions are Greece and, more importantly, Italy where we expect the debt burden to keep rising and potentially …
Food inflation the least of the ECB’s problems We suspect that harvesting and supply issues rather than stockpiling caused the increase in food inflation in April, and that these effects will persist in the summer. Nonetheless, with core inflation falling …
We think that the ECB could end this year owning 40% or more of the government bond markets in Italy, Spain and Greece. That would help to cap bond yields this year, but it could create serious legal and political challenges for the central bank further …
19th May 2020
The €500bn EU joint fiscal package suggested by France and Germany would be a significant move towards fiscal union. However, the benefit to the countries hit hardest by the coronavirus crisis, notably Italy, would probably be little more than 2% of GDP, …
Yet another iteration of the Norwegian Budget The publication of a revised 2020 budget by the Norwegian government on Tuesday raised a couple of points worth noting. First, the government’s forecast of a 4% fall in mainland GDP this year is on the …
15th May 2020
This week’s data have brought further evidence of just how badly the euro-zone economy fared at the tail end of Q1. Industrial production , which had hardly been booming prior to the coronavirus pandemic, was unsurprisingly weak in March, while in the …
Euro-zone trade imbalances to narrow, but for the wrong reasons Euro-zone trade values fell sharply in March, and more open economies will suffer most from the drop in global demand. But the stringency and duration of virus containment measures will be a …
Bigger falls in GDP to come in Q2, with more variation between countries The Q1 GDP data confirm that virus containment measures have caused much bigger declines in activity in some euro-zone countries than in others. Over the rest of the year, we think …
The estimates of Q1 GDP that have been released so far have been subject to all manner of health warnings and are liable to be revised, potentially significantly, over the coming quarters. Nonetheless, there is a clear relationship between the severity …
14th May 2020
Wage subsidy schemes in place throughout the euro-zone have so far been effective at preventing a surge in unemployment. In this Update , we answer five questions about how these schemes will evolve as lockdown measures are eased and the impact of these …
Now that restrictions are being lifted, governments are inevitably facing calls to ensure that firms emerging from virus-imposed stasis have sufficient demand to stay open – not least in the German car sector. However, government support for autos will …
13th May 2020
Confirmation that industry is in free fall The slump in euro-zone industrial output in March came as no surprise given the extremely weak national data already published. Worse is to come in April before the sector begins to gradually recover. The 11.3% …
Falling core inflation increases pressure on the Riksbank While the Riksbank will look through the energy-driven plunge in headline inflation in April, the further fall in underlying price pressures will be harder to ignore. All told, while policymakers’ …
Norges Bank to look through pick-up in core inflation The food-driven jump in the core inflation rate in Norway in April will not trouble the Norges Bank. With the economy facing a slow recovery, a prolonged period of record low interest rates is on the …
11th May 2020
Limited solace from Sweden’s light-touch lockdown This week provided mixed messages on the health of the Swedish economy. On a positive note, there were welcome signs that the country has reaped some benefit from its light-touch lockdown – at least from a …
7th May 2020
German court won’t stop the ECB… yet Much ink has already been spilled this week on the German constitutional court, including by us. (See here .) So rather than go through it line by line, picking out the numerous unhelpful and at times bizarre claims …
This morning’s 25bp rate cut by the Norges Bank, to a fresh record low of zero, took the consensus by surprise, but was in line with our forecast. That said, the Bank gave a strong signal that it has now reached the end of string of rate cuts, and we now …
Only a slow recovery in prospect The largest monthly decline in production since this time series was launched in 1991 will probably be followed by an even bigger fall in April. After that, we anticipate a gradual recovery. The 9.2% m/m fall in industrial …
Governments have taken their first steps towards lifting the restrictions which caused the economy to collapse in the past few weeks. As a result, high frequency indicators show some people returning to the streets in major cities and a small rebound in …
6th May 2020
It will take a long time for output to return to “normal” Euro-zone retail sales plummeted in March and the PMIs fell to new record lows in April. Output should pick up again now that containment measures are being lifted, but it will remain very low for …
Just as the Greek economy was getting back on its feet the coronavirus pulled the rug from under it. And while the government’s generous fiscal support will cushion the blow, it also raises questions over debt sustainability once this is all over. Last …
5th May 2020
The German constitutional court ruling today will not bring the ECB’s asset purchase programme to a sudden end. But it highlights that a successful legal challenge to the its policies in the future could contribute to increased tensions in the bond …
Q1 data underplay scale of economic disruption in Sweden The comparatively small fall in Swedish GDP in Q1 appears to owe as much to a strong January and February as Sweden’s lighter-touch lockdown. Accordingly, today’s data underplay the scale of the …
Sweden’s light-touch lockdown offers limited solace for industry While Sweden’s less stringent lockdown has received a lot of attention, today’s data add to the evidence that economic activity there has not fared much better than elsewhere in Europe. The …
4th May 2020
It has been a busy week in the euro-zone with lots of data releases and the scheduled ECB monetary policy meeting yesterday. Stepping back, we have learnt three main things from the data. First, the slump in the first quarter was in line with our …
1st May 2020
KOF Barometer is feeling under the weather The unprecedented scale of the Covid-related economic carnage has seen previously reliable relationships between business surveys and output break down in many countries, and Switzerland is no exception. While …
Given the toxic combination of Covid-related disruption and precipitous plunge in oil prices, we think that the Norges Bank’s easing cycle has further to run. Whereas financial markets are pricing in only a small chance of further loosening, we have …
The ECB’s failure to step up its asset purchase programmes at today’s monetary policy meeting will leave investors with nagging doubts about its commitment to underwrite government borrowing during the coronavirus crisis. Eventually, however, the lack of …
30th April 2020
Economy to recover only slowly from April trough Italy’s economy experienced a bigger contraction than the euro-zone average in Q1. And the closure of non-essential businesses at the end of March means that it is set for a much deeper downturn in Q2. The …
Shocking data boosts case for more ECB support The blizzard of depressing economic data released this morning confirms that the euro-zone economy was in freefall at the end of March, with GDP dropping by a record amount throughout the region. This should …
Barometer underplays scale of economic damage Despite registering its largest monthly fall on record in April, the KOF Economic Barometer appears to underplay the havoc that has been wreaked on the Swiss economy. While the government has begun to ease the …
