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Immigration has remained very high up the political agenda this week, and while EU leaders reached a compromise on Monday, this is not a closed issue and tensions may well flare up again. Meanwhile, the news on the German economy has been much better this …
6th July 2018
May’s industrial data add to the evidence that the weakness in the sector earlier in the year was at least partly down to temporary factors. Overall, the German economy has clearly shifted down a gear this year, but we expect growth to remain fairly …
Hard data relating to euro-zone activity in Q2 have been a little disappointing so far, denting hopes that GDP growth would rebound strongly after Q1’s 0.4% quarterly expansion. Industrial production declined by 0.9% m/m in April, while retail sales fell …
5th July 2018
June’s rise in Swiss inflation was driven by faster imported inflation, which we doubt will last. Domestic price pressures remain subdued, so we expect the SNB to leave interest rates unchanged until 2020. Elsewhere, private sector production data in …
The deterioration in French consumer morale suggests that household spending growth will remain fairly subdued in the next couple of quarters. But we doubt that this will last. The bright outlook for the labour market, weak inflation and solid bank …
3rd July 2018
May’s euro-zone retail sales data were a little weaker than expected, but still imply that the consumer sector fared better in Q2 than in Q1. And looking ahead, we think that household spending will remain a key driver of economic growth in the region. … …
The Riksbank looks very likely to raise interest rates in December. We think that the Bank will then raise interest rates more quickly in 2019 and 2020 than investors expect, causing the krona to strengthen. … Tighter monetary policy on the way in …
Germany is the only major euro-zone economy where underlying inflation looks set to rise meaningfully in the next year or so. But even there, inflation is likely to remain lower than in major economies elsewhere such as the US and UK. This suggests that …
2nd July 2018
May’s unemployment data revealed that the steady recovery in the euro-zone labour market had continued despite signs of a slowdown in the wider economy. But with wage growth remaining subdued, the ECB is unlikely to change its guidance that interest rates …
Switzerland’s manufacturing PMI survey for June suggested that the economy is growing strongly, but inflationary pressures are weak. By contrast, Sweden’s survey implies that growth will slow, but inflation pressures are building. So higher interest rates …
In our opinion, this week’s media coverage of the June EC and Ifo surveys was too downbeat. Both indicators are still consistent with annual GDP growth of over 2%. Other data told a familiar story of subdued underlying price pressures. Meanwhile, at this …
29th June 2018
The Swiss Government this week made no progress towards reaching a deal with Brussels that would see Switzerland retain its unrestricted access to the Single Market. With the anti-immigrant SVP party announcing that it has collected enough signatures to …
June’s inflation data are unlikely to change the ECB’s assessment of the outlook for monetary policy. We maintain our long-held view that the Bank will leave its interest rates unchanged until September next year before raising interest rates a little …
The small rise in the KOF Economic Barometer in June suggests that the Swiss economy will continue to grow at a decent pace. But with still little sign that this is generating inflationary pressures, we expect the SNB to stick to its ultra-accommodative …
After falling only marginally in June, the EC’s measure of economic sentiment provides further evidence that the softness in activity recorded in Q1 does not mark the start of a sharp downturn. … EC Business & Consumer Survey …
28th June 2018
While most forecasters now agree with our long-held view that the first ECB rate hike will come in September 2019, there is no clear consensus over which rate will rise first or why. In this Update , we explain why the deposit rate is now the best gauge …
27th June 2018
Norway’s labour market recovery should continue to push up wage growth over the coming years. But with wage expectations still quite low, wage growth will probably rise only slowly, so the Norges Bank will be very cautious about tightening monetary …
President Trump’s threat to retaliate to EU tariffs with a 20% tax on EU car exports sounds alarming. In fact, the direct effect on the euro-zone would be smaller than you might think, perhaps reducing GDP by 0.1%. But the threat points to a rising risk …
26th June 2018
We think that Italy’s bond yields will rise more quickly than most expect. But as long as the Government waters down its fiscal plans, and is committed to the euro, its interest costs should remain manageable. … How big a problem for Italy are rising …
25th June 2018
While the Ifo Business Climate Indicator edged down in June, it remains at a high level and therefore adds to evidence from the PMI that growth picked up somewhat in Q2 after a slow start to the year. … German Ifo Survey …
This week’s quarterly policy statement from the Swiss National Bank strengthened our view that tighter monetary policy in Switzerland is a long way off. By contrast, higher interest rates are imminent in Norway. Meanwhile, data released this week for …
22nd June 2018
The big news this week was that Greece is finally emerging from a period of eight years under bailout programmes. But our judgement remains that the risks of a future Greek default and/or euro-zone exit are significant. Meanwhile, comments at the ECB’s …
June’s rise in the euro-zone PMI provides some reassurance that the softness recorded so far in 2018 is not the start of a sustained downturn, and that the pace of GDP growth will remain fairly healthy. … Euro-zone Flash PMIs …
Today’s policy announcement by the Norges Bank shows that it is on the brink of raising interest rates. But once it has started, it will tighten policy only very slowly. And because we forecast oil prices to fall, we think that the krone will depreciate …
21st June 2018
Despite the ECB calling time on its asset purchase programme last week, the Swiss National Bank today left its monetary policy stance unchanged and cited worries about franc strength, political developments in the euro-zone and protectionism. With …
The Eurogroup seems set to agree the payment of Greece’s final loan tranche tomorrow and to offer a cash buffer to help it through the early months after it exits its bailout in August. But mooted “debt relief” measures only push the problem further into …
20th June 2018
In contrast to the euro-zone and UK, the Swiss and Nordic economies grew fairly quickly in Q1. Finland was the top performer, with GDP rising by 1.2% on the quarter. Iceland was hot on its heels, growing by 1.1%. A little further back was Sweden, where …
19th June 2018
We expect the ECB to start raising interest rates in September 2019, not long before we judge that the US Fed will start to cut. Such divergence between the two central banks would be almost unprecedented and have important implications for financial …
18th June 2018
The Swiss and Nordic central banks are unlikely to follow the ECB in announcing significant changes to monetary policy over the next month. … Will the Swiss and Nordic central banks follow the …
The ECB finally announced this week that the end of its asset purchase programme is in sight and that rates will stay on hold at least until the second half of 2019. But the ECB is not on auto-pilot until next September: Mr Draghi was keen to stress that …
15th June 2018
The pick-up in euro-zone wage growth in Q1 is another sign that the economy is moving in the right direction. Over the coming years, we think wage growth will continue to rise, but only gradually. So we still think that the ECB will wait until September …
The ECB announced today that its asset purchase programme will end in December. But its other communications reinforced our long-held view that interest rates will not rise until at least September 2019. And the Bank kept the door open to renewed asset …
14th June 2018
May’s rise in Swedish CPIF inflation primarily reflected stronger energy and food inflation. But with domestic inflationary pressure building, we continue to think the Riksbank will raise rates in December. … Swedish Consumer Prices …
Fears that the euro-zone’s recovery is going into reverse seem overdone. Weakness in Q1 related partly to temporary factors, the effects of Italian political turmoil have been contained and prospects for domestic spending are strong. But the long-term …
13th June 2018
The Central Bank of Iceland left policy unchanged today and reiterated that a tight monetary policy stance is still needed, given the strong economy and pressures in the labour market. We think that the Bank is underestimating the latter and expect it to …
April’s fall in euro-zone industrial production adds to the evidence that the economy has not rebounded strongly since Q1’s slowdown. Nevertheless, with more timely survey measures of activity still at pretty high levels, we think that the euro-zone …
May’s weak inflation data in Norway strengthen the case for the Norges Bank to move only very slowly towards tightening monetary policy. We suspect that it will wait until early 2019 before raising interest rates, later than the Bank and investors …
11th June 2018
Italy’s new prime minister, Giuseppe Conte, gave his maiden speech to parliament this week, and his comments riled the markets. After all, he reiterated the Government’s intentions to cut taxes significantly and introduce a minimum citizen’s income, both …
8th June 2018
The Icelandic economy had a weak start to the year, as net trade and investment weighed on growth and offset the continued strength of private consumption. But the surveys suggest that the outlook remains fairly bright. … Icelandic GDP …
April’s data for industrial production in Germany and France add to the evidence that the euro-zone economy is unlikely to rebound strongly after Q1’s slowdown. … German & French Industrial Production …
Although Italy is likely to stay in the euro-zone for the foreseeable future, recent political developments have resurrected the possibility of it leaving at some point and raised the issue of how Italy would settle its big TARGET2 liabilities. The upshot …
7th June 2018
Despite worries about Italy’s new Government, we suspect that the ECB will announce after its meeting on 14th June that it will end its asset purchases this year. It might also strengthen its guidance on interest rates to prevent speculation that it will …
Politics have captured the limelight over the past month. Bond yields in Italy have risen sharply over the past few weeks as concerns about debt sustainability and the new government’s commitment to the euro have mounted. Italian 10-year bond yields are …
The third estimate of euro-zone Q1 GDP confirmed that the slowdown in growth was caused by net trade. While the latest evidence suggests that growth is unlikely to pick up much in Q2, it should still be stronger than the euro-zone’s long-run potential. … …
The Central Bank of Iceland is likely to leave policy unchanged next week. But with imported inflation rising and domestic price pressures set to grow, we see the Bank raising interest rates later this year. … Inflationary pressures in Iceland set to …
6th June 2018
Although headline inflation rose in May to its highest level in over seven years, the core rate fell to a nine-month low. This will be a concern to the SNB, especially given the appreciation of the franc over the past week or so. We expect the Bank to …
Political turmoil in Italy has rocked Swiss and Nordic financial markets over the past few weeks, but the economic fallout is likely to remain limited. That said, if the situation in Italy worsens, the Swiss economy looks more vulnerable than the Nordics. …
5th June 2018
April’s euro-zone retail sales data imply that the consumer sector fared a little better in Q2 than it did in Q1. Nevertheless, May’s Composite PMI is consistent with the pace of GDP growth remaining at around Q1’s pace, suggesting that growth has shifted …
April’s rise in private sector production suggests that Sweden’s economy got off to a decent start to Q2. While the construction sector is likely to remain weak, overall we expect the economy to continue performing well, causing price pressures to build …
In any other week, the imposition of tariffs on the EU by the US would have taken centre stage. But amid the political and market turmoil in Italy and the downfall of Spain’s government, this was no normal week even for the euro-zone. The risks of a …
1st June 2018
