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Delays to car production appear to have had a big impact on GDP in Q3, particularly in Germany and Italy. But these effects should be temporary, so we expect growth to rebound in Q4. This suggests that after stagnating in Q3, Italy is not on the brink of …
2nd November 2018
While the minutes to the Riksbank’s October meeting all but confirmed that interest rates will start to rise in the coming months, a December hike is not a done deal. But regardless of whether the Bank starts tightening in December or February, we think …
Although Swiss headline inflation edged back up in October, the core rate was unchanged at a very low level. And as surveys of both manufacturers and consumers suggest that price pressures are muted, we expect the Swiss National Bank to stick to its very …
1st November 2018
Data on car production imply that delays related to emissions testing may have been entirely responsible for the slowdown in euro-zone GDP growth from 0.4% in Q2 to 0.2% in Q3. While the underlying pace of growth has slowed compared to last year, we …
31st October 2018
October’s increase in euro-zone inflation supports the ECB’s judgement that underlying price pressures are gradually building despite the slowdown in activity over recent months. … Euro-zone Flash CPI (Oct.) & Unemployment …
While the 0.2% expansion in the euro-zone economy was disappointing, it probably in part reflects temporary factors. As a result, we expect there to be some recovery in the coming quarters. … EZ Q3 GDP (Prelim. Flash) & EC Survey …
30th October 2018
The news that Angela Merkel will step down as head of the CDU has limited implications for the German economy since she will stay on as Chancellor for now and her likely successors broadly support her policies. But it may well slow decision-making over …
29th October 2018
While both the Riksbank and the Norges Bank kept monetary policy unchanged this week, they signalled in their policy statements that they intend to raise interest rates in the coming months. With inflationary pressures building, we expect the Riksbank to …
26th October 2018
Euro-zone surveys published this week painted a pretty gloomy picture of the economy at the start of Q4. Some of that weakness probably reflected temporary factors and the ECB didn’t appear to be too concerned, reaffirming its plans to end asset purchases …
The ECB today reaffirmed its plans to normalise monetary policy gradually, expressing little concern about the recent run of weaker economic data or the clash between Italy and the European Commission. Risks to the outlook mean that the first interest …
25th October 2018
The further fall in the Ifo Business Climate Indicator (BCI) in October suggests that while the German economy is still growing at a decent pace, we are unlikely to see a return to the rates of growth seen in the second half of last year. … German Ifo …
Although it left its policy stance unchanged today, the Norges Bank struck a slightly more hawkish tone. We continue to think it will raise rates again next March. But even as the Bank tightens policy, we think that falling oil prices will cause the krone …
The unexpectedly sharp decline in the Composite PMI in October left it pointing to the slowest pace of quarterly euro-zone GDP growth for two and a half years. … Euro-zone Flash PMIs …
24th October 2018
Although the Riksbank left monetary policy unchanged today, it is still on track to begin raising interest rates in December. We think that the Bank will then tighten more quickly than investors expect, causing the krona to strengthen in 2019 and 2020. … …
The latest data suggest that underlying inflation is picking up in Sweden, Norway and Iceland and we expect the central banks in all three countries to respond by tightening monetary policy. In Sweden, non-energy CPIF inflation rebounded in September and …
23rd October 2018
The ECB’s Q3 Bank Lending Survey provided further evidence that euro-zone economic growth will continue to hold up fairly well. And, at least for now, there is little sign that the political uncertainty in Italy is causing credit conditions there to …
The Italian Government’s reply to the European Commission suggests that there is unlikely to be a quick resolution to the current fiscal impasse. We expect yields to rise in the coming years. … No end in sight for Italian fiscal …
22nd October 2018
Safe-haven demand for the Swiss franc increased this week as the Italian Government clashed with the EU over its 2019 Budget. With worries about Italy set to persist, we think that the franc will weaken only slightly against the euro as the SNB lags …
19th October 2018
The EU is almost certain to reject Italy’s draft budget. In our view, it is most likely that a re-drafted budget would still fail to meet the EU’s rules, so Italy will probably be put into an Excessive Deficit Procedure. There are other possibilities …
While the Riksbank, the Norges Bank and the ECB are likely to keep interest rates unchanged next week, we expect them all to signal tighter policy ahead. The recent rebound in underlying inflation will have made the Riksbank more confident in its plans to …
The ECB has certainly given some mixed messages over recent weeks, with some Council members judging that the first rate hike should come during next summer while others assert that Q4 2019 is more likely. We doubt that it will change its forward guidance …
18th October 2018
The era of record-low interest rates is nearly over in Sweden, but it is a long way from finished in Switzerland. The Swedish economy is powering ahead, generating inflationary pressure that the Riksbank will soon need to rein in. We expect it to begin …
Prospects for Europe have deteriorated somewhat as slowing global demand has begun to affect exports and a sharp rise in bond yields has darkened the outlook for Italy. Some of the major players should continue to perform very well. The German labour …
17th October 2018
On its own, the inevitable clash between the EU and the Italian Government is unlikely to have much of an economic impact, at least in the near term. However, the situation could well escalate next year, causing bond yields to surge and the economy to …
16th October 2018
Inflation data published this week showed that price pressures are building in Sweden and Norway. We expect the Riksbank to begin raising interest rates in December. But while the Norges Bank looks set to raise interest rates again in the first half of …
12th October 2018
Some of the recent weakness in euro-zone industry, particularly that in Germany, seems to have been caused by hold-ups relating to new emissions tests. While part of this delayed output will probably be made up later, overall industrial growth is unlikely …
August’s euro-zone industrial production data were pretty strong, particularly given the drag from temporary disruption in the car industry. But the big picture is that this year’s general slowdown in output growth is likely to continue. … Euro-zone …
Rating downgrades as soon as the end of this month may well push Italian bond yields higher, with adverse effects on the economy and the banks. Further downgrades to junk status seem feasible in future, which would heighten the risks of a banking crisis …
11th October 2018
The rebound in non-energy inflation in September will reassure the Riksbank that it is right to be planning to tighten monetary policy in the coming months. We expect underlying inflation to continue to pick up, allowing the Bank to start raising interest …
September’s strong inflation data are unlikely to change the Norges Bank’s plans to wait until Q1 next year before raising interest rates again. Looking beyond that, we think that falling oil prices will cause the Bank to end its tightening cycle sooner …
10th October 2018
August’s 0.3% fall in German industrial production was much weaker than expected and suggests that the economy is very unlikely to match Q2’s 0.5% expansion in the third quarter. We have revised down our GDP forecast for this year from 2.2% to 1.8%. … …
8th October 2018
The fall in Swiss inflation in September is a sign of things to come. Indeed, exchange rate effects and weak wage growth are set to ensure that price pressures remain very weak, keeping the SNB on hold until 2020. Meanwhile, although private sector …
5th October 2018
The Italian Government’s fiscal projections, published this week, are based on overly-optimistic assumptions for GDP growth. We expect Italian bond yields to keep rising as the budgetary position worsens by more than policymakers and investors anticipate. …
The fiscal stimulus planned by Italy’s Government should provide a small boost to GDP growth next year. But that boost will fade in 2020 just as the ECB is likely to be tightening monetary policy, suggesting that growth will then slow sharply. … Italy’s …
September’s Swiss inflation data provided further evidence that despite strong GDP growth, domestic price pressures remain very weak. And with the franc’s recent appreciation dampening imported inflation too, we expect the SNB to keep its policy rate on …
Business and consumer surveys suggest that growth in the euro-zone as a whole will continue at a fairly healthy pace of around 0.4% per quarter in the near term. But there is a growing divergence by country. The German survey indicators have stabilised at …
4th October 2018
While Italy and Greece have some similarities, the fundamental cause of Italy’s problems is not fiscal laxity but consistently weak economic growth. So rather than resulting in a sudden crisis, as has happened in Greece several times, we suspect that …
3rd October 2018
We think that faster wage growth in the core countries will drive aggregate euro-zone wage growth up over the next few years, prompting the ECB to raise interest rates. But wage growth in the periphery looks set to be much weaker, and might even start to …
After almost five years of deflation, consumer prices are finally rising in Switzerland. But much of this has reflected higher energy costs, while underlying price pressures are still very weak. We therefore expect “lowflation” to persist, keeping the …
Although the Central Bank of Iceland left monetary policy unchanged today, it reiterated that it was prepared to take action if inflation expectations rise further. We think that this is likely and continue to expect the Bank to raise interest rates by …
August’s euro-zone retail sales data suggest that spending growth failed to gain pace in Q3, but there are good reasons to think that sales volumes will accelerate as inflation falls in the months ahead. The final Composite PMI suggests that the euro-zone …
Amid the concern about the state of Italy’s public finances, the banks remain the country’s weakest link. Indeed, despite improvements over the past few years, the banking sector is still too weak to withstand the impact of much higher bond yields for …
Greece’s draft budget for 2019 suggests that the country is taking its fiscal targets much more seriously than Italy. But a closer look at the proposed measures implies some fiscal slippage, which could intensify around next year’s election increasing the …
2nd October 2018
The economic assumptions underpinning Italy’s budget forecasts look over-optimistic. As a result, while the Government expects the public debt ratio to fall over the next few years, we think that it will rise. … Italy’s GDP growth forecasts are far too …
1st October 2018
September’s falls in the Swiss and Norwegian manufacturing PMIs leave them still pointing to strong growth in the sector. But it is in Sweden that price pressures seem to be strongest. … Manufacturing PMIs …
August’s further fall in euro-zone unemployment adds to evidence that wage growth is likely to rise further in the coming months, supporting the case for gradual ECB policy normalisation. But there are still dramatic differences by country. … Euro-zone …
The Italian and French governments’ fiscal plans, announced this week, suggest that the headline budget deficit will be similar in both countries over the next few years. But we suspect that the deficit in Italy will be bigger than the official target. …
28th September 2018
There are still no signs that domestic political uncertainty is weighing on the Swedish economy, so we continue to expect the Riksbank to raise rates in December. Meanwhile, rising inflation expectations mean that Iceland’s central bank is likely to …
We think that Italy’s budget deficit will be even wider over the next few years than the Government’s projections imply. As a result, we expect bond yields to keep on rising. But unless yields surge, or there are clearer signs of contagion, the ECB is …
The further decline in core inflation in September was a little disappointing and, against a backdrop of slower economic growth, will ensure that the ECB remains very cautious in its approach to normalising policy. We think that the first hike will come …
