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Disinflation resumes, but services inflation stays high Inflation figures for Germany and other major euro-zone economies suggest that, after rising in May, euro-zone headline and core inflation edged back down in June. But services inflation remained …
1st July 2024
Final results still uncertain but fiscal outlook will be worse after the election The preliminary results of the first round of voting are broadly in line with the final opinion polls, showing that Emmanuel Macron’s centrist coalition has lost out to both …
30th June 2024
We’re just two days from the first round of the French legislative election. (All of our election coverage can be found here .) Voting closes on Sunday at 8pm Paris time (7pm BST) and polling organisations should release estimated results shortly …
28th June 2024
Services inflation remains high Inflation figures for France, Italy and Spain suggest that euro-zone headline inflation edged down in June, while core and services inflation held broadly steady. This supports our view that the ECB will cut rates only …
The upcoming French election continues to loom over euro-zone financial markets and the euro. We think it would take a worst case scenario in which France’s fiscal outlook worsens materially to generate a sustained fall in the euro. That is a plausible …
27th June 2024
This page has been updated with additional analysis since first publication. EC Survey points to economic growth stagnating The EC business and consumer survey for June is consistent with weak growth in euro-zone GDP and suggests that price pressures …
May’s data show a continued gradual increase in money and lending growth, though both remain slow. While the ECB’s loosening cycle is now underway, money and lending growth are set to remain subdued. The ECB’s previous monetary tightening caused the …
This page has been updated with additional analysis since first publication. Riksbank pauses but will probably cut again in August The Riksbank’s decision to leave rates unchanged was as expected and does not suggest that policymakers are regretting their …
If the results of France’s election, or actions of the next French government, trigger contagion to other euro-zone countries’ bond markets, the ECB could respond by purchasing their bonds using the Transmission Protection Instrument (TPI). Under some …
25th June 2024
This Update summarises the answers to some of the questions which clients raised in our recent online briefing about the forthcoming French legislative elections. The questions are divided into three sections: politics, economics, and markets. (The online …
24th June 2024
This page has been updated with additional analysis since first publication. Business sentiment still poor June’s decline in the Ifo business climate indicator (BCI) to a very low level highlights that even after Germany’s economy grew in Q1, it is far …
With all eyes on France, it is easy to forget that the Netherlands has also been experiencing political disruption over the last 12 months. But politics there has proved less disruptive to markets and we expect economic growth in the Netherlands to …
21st June 2024
This week, the European Commission (EC) announced its intention to open “Excessive Deficit Procedures” (EDPs) against five euro-zone countries: France, Italy, Belgium, Slovakia and Malta. The decisions need to be signed off by the European Council, but …
This page has been updated with additional analysis since first publication. Back to stagflation? The sharp drop in the euro-zone Composite PMI in June suggests a solid recovery in the euro-zone economy is not a done deal, with activity having apparently …
Having cut the policy rate by 25bp at its last meeting, we think the Riksbank will stick with its guidance that it will keep rates on hold next week. But with inflation likely to fall below 2% in the coming months, policymakers will probably cut the …
20th June 2024
We see three scenarios for French fiscal policy in the coming months. Even in the best case the spread of French over German bond yields remains higher than before Macron called an early election. In the worst case there is a fully-fledged bond market and …
Overview – The euro-zone has come out of a long period of stagnation and will expand at a moderate pace over the coming two years. The recovery will be faster in some southern economies, such as Spain, than in core economies, notably Germany, while the …
The SNB’s decision to cut the policy rate from 1.5% to 1.25% was probably more influenced by the appreciation of the franc over the last two months than any perceived easing in domestic inflation pressures. In our view, the SNB is unlikely to cut rates …
This page has been updated with additional analysis since first publication. Norges Bank to be one of last DM central banks to start cutting Norges Bank’s verbal guidance and updated interest rate projections reinforce the message that it won’t start …
SNB cuts rates again, but no further cuts likely this year Today’s decision by the SNB to reduce its policy rate from 1.5% to 1.25% was correctly anticipated by two thirds of economists surveyed by Reuters. (We were in the minority anticipating a hold.) …
We expect political uncertainty in France to maintain a floor under government bond spreads in the near term, not only in France but also in other vulnerable euro-zone countries. Further ahead, we see scope for spreads to fall back in Greece, Portugal, …
19th June 2024
Data released this morning suggest that May’s surprisingly large jump in euro-zone services inflation may have been due to the most unlikely of culprits: Taylor Swift. So to some extent, the ECB can “shake it off” (apologies). Wage-sensitive inflation …
18th June 2024
The focus this week has been on the fallout of the European elections in France because there is a real chance that the parliamentary elections, to be held on 30 th June and 7 th July, will lead to a government led by the far-right Rassemblement National …
14th June 2024
This page has been updated since publication with additional analysis. Rise in core inflation likely to be temporary The Riksbank’s target measure of inflation, CPIF, remained at 2.3% in May, but the core measure (CPIF excluding energy) rose slightly for …
The SNB is likely to keep rates on hold at 1.5% at its meeting next week as inflation in Q2 so far has been in line with the its forecast in March. Moreover, the latest data on wage growth were much stronger than ahead of the March meeting, which we think …
13th June 2024
Norges Bank will leave its policy rate at 4.5% next week and reiterate that rate cuts are some way off. We think it will wait until December to start loosening monetary policy. As a reminder, the press release following Norges Bank’s meeting in May said …
This page has been updated with additional analysis since first publication. Output fell and outlook for industry is poor The 0.1% m/m decrease in euro-zone industrial production in April was slightly weaker than the published consensus forecast of 0.2% …
EU protecting domestic producers but not ending Chinese EV imports Reports that the European Commission will “provisionally apply” additional duties of up to 25% on imports of EVs from China from July, on top of the 10% tariff already in place, are in …
12th June 2024
France’s National Rally has advocated policies that would increase the budget deficit and provoke clashes with the EU. During the election campaign, it will probably moderate these views, but the chance of France reducing its deficit to 3% of GDP by 2027, …
11th June 2024
Sluggish economic growth in the euro-zone’s trading partners and a deterioration in competitiveness caused an extremely rare absolute decline in euro-zone export volumes last year. Poor competitiveness will remain a perennial problem, but global growth …
The latest data has been a bit stronger than we had anticipated and suggests that the recovery in euro-zone activity may continue at a moderate pace. The labour market remains tight, with unemployment falling to a fresh record low and wage growth picking …
10th June 2024
Macron’s gamble adds to risks for public finances Support for the centrists has held up quite well in European elections but this was overshadowed by the jump in votes for the far-right in France and President Macron’s surprise decision to dissolve …
In the coming years, we expect Europe to raise barriers to trade and investment with China but to do so in a targeted and gradual manner. If so, there would be big implications for some sectors, including electric vehicles and renewable technologies, but …
7th June 2024
Data released this week confirmed that the euro-zone economy is out of recession, but that domestic demand is still quite weak. The second estimate of Q1 GDP showed that the economy expanded by 0.3% q/q. But the breakdown revealed that was fully explained …
The ECB began its easing cycle today, as expected, but the accompanying guidance and forecasts suggest that it will proceed cautiously. We now think the Bank will cut interest rates by only a further 50bp before the end of the year, with the next cut …
6th June 2024
ECB cuts but future easing uncertain Any celebrations about today’s 25bp rate cut by the ECB are likely to be muted at best, given that the decision was fully discounted by financial markets and the most recent inflation and wage data have dampened …
This page has been updated with additional analysis since first publication. Euro-zone sales ticked down but past the worst Retail sales ticked down in April we expect them to rise gradually from here. The 0.5% m/m decline in retail sales in April was a …
This webpage has been updated with additional analysis. Headline inflation unchanged in May, doubts about future rate cuts Switzerland’s inflation rate remained at 1.4% in May as an increase in rents was offset by a further fall in core goods prices. …
4th June 2024
With the government debt-to-GDP ratio likely to trend up over the medium term, and the budget deficit set to stay above 3% of GDP, we suspect that France will be subject to further rating downgrades in future. The risks are significantly higher in the …
3rd June 2024
The key event next week will of course be Thursday’s ECB meeting which we have previewed separately in our ECB Watch . In brief, we think the Bank will go ahead and cut its deposit rate from 4.00% to 3.75% but now expect it to leave rates on hold in July …
31st May 2024
Having pre-committed to doing so, we think the ECB will cut rates next week. But given the jump in services inflation in May, we now expect a pause in July. We forecast the ECB to cut its deposit rate to 3% by year-end. Having agreed to do so at their …
This page has been updated with additional analysis since first publication. Increase in inflation won’t stop ECB from cutting next week May’s increases in headline and core inflation – and jump in services inflation to a seven-month high – won’t stop the …
During the coming months, we expect falling goods and energy inflation to pull down the headline inflation rate in Sweden. This should encourage policymakers to cut rates from 3.75% currently to 3.00% by the end of the year. However, we are not pencilling …
30th May 2024
This page has been updated with additional analysis since first publication. EC Survey points to weak economic growth and easing price pressures The EC business and consumer survey for May is consistent with weak growth in euro-zone GDP, while price …
German state data point to smaller-than-expected rise in euro-zone inflation CPI inflation data published by the major German states this morning suggest that both German and euro-zone HICP inflation may come in a bit lower than expected and that though …
29th May 2024
Worrying or reassuring? The wage growth data published this week were not good for the inflation outlook, but they weren’t as bad as they first appeared. As a re-cap, data released by the ECB showed that negotiated wages rose by 4.7% y/y in Q1, slightly …
24th May 2024
We don’t think the pick-up in euro-zone negotiated wage growth in Q1 will stop the ECB from cutting interest rates in June. But the continued strength of pay pressures reduces the chance of the ECB cutting rates rapidly in the second half of the year. The …
23rd May 2024
This page has been updated with additional analysis since first publication. Recovery continuing The PMIs for May suggest that the euro-zone economy continued to expand in Q2 while price pressures eased but remained high in the services sector. The ECB is …
This page has been updated with additional analysis since first publication. Construction outlook is poor Euro-zone construction output rose slightly in March but we think the sector will struggle over the coming months. The 0.1% m/m rise in construction …
21st May 2024
The next German federal election will be crucial in determining how Germany will respond to its structural economic challenges. This Update answers some key questions on what to expect from the election and its implications for economic policy and …
20th May 2024
