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Inflation keeps falling more quickly than Norges Bank’s forecasts but policymakers will be uneasy about the renewed weakening of the krone. We expect them to repeat that the policy rate will be unchanged “for some time ahead”, but we think they will opt …
12th September 2024
There was never any doubt that the ECB would cut its deposit rate by 25bp today, to 3.5%. Meanwhile, the policy statement and press conference were largely as expected and do not change our view that the next rate cut is most likely to be in December – …
ECB likely to ease policy only gradually There was never any doubt that the ECB would cut its deposit rate by 25bp today, to 3.5%. Otherwise, the policy statement is largely as expected and does not change our view that the ECB will probably leave rates …
Getting an early steer on whether an economy has entered recession requires a holistic assessment of a variety of indicators to see if multiple variables are flagging recession at the same time. In this vein, we have created Economic Momentum Indicators …
9th September 2024
In principle, an increase in EU integration and cooperation, as proposed by Enrico Letta in April and Mario Draghi today, could increase output in the long run. But any progress will be slow, and the proposals are unlikely to be implemented in full. …
Economic growth in the euro-zone slowed in Q2 and timelier data suggest that it weakened further in Q3. That, together with the further fall in wage growth and headline inflation, all but guarantees another 25bpcut at the ECB’s September meeting. But with …
6th September 2024
Two months after the conclusion of France’s parliamentary elections, we finally know the name of the next prime minister (the fifth since 2020). The good news, at least for France’s creditors is that Michel Barnier, who is a member of the centre-right Les …
Governing Council to cut deposit rate by 25bp again next week. Policymakers will point to a gradual easing cycle beyond that. Pace of rate cuts by the Fed will have little impact on ECB. The ECB looks certain to cut its deposit rate from 3.75% to 3.5% …
This page has been updated with additional analysis since first publication. No respite for German industry The big drop in German industrial production in July adds to the sense that the sector is facing a deep crisis and that, having contracted in Q2, …
This page has been updated with additional analysis since first publication. Retail sales likely to rise gradually Retail sales edged up by 0.1% in July, and we expect them to rise further in the coming months, though at only a fairly modest pace. The …
5th September 2024
This page has been updated with additional analysis. Headline inflation falls, risks skewed to the downside Switzerland’s headline inflation rate fell in August to one of its lowest levels in the last three years. This will be welcome news for the SNB, …
3rd September 2024
Traffic-light coalition to stay on but state elections point to challenges ahead The big rise in populist parties in elections in two East German states at the weekend doesn’t threaten the survival of the governing coalition but it points to some …
2nd September 2024
Belgium's political crisis and high budget deficit have largely gone unnoticed in past couple of months while all eyes have been on France. This Update answers some key questions about its political situation and prospects for fiscal policy heading into …
30th August 2024
With no significant hard activity data out yet, it is too early to be confident about how the economy will perform in Q3, but the initial signs are not promising. To recap the survey data so far, the euro-zone Composite PMI fell from an average of 51.6 in …
This page has been updated with additional analysis since first publication. Services inflation remains sticky We doubt that August’s unexpected increase in services inflation will stop the ECB from cutting interest rates at its next meeting in September …
Road cleared for ECB cut in September Inflation figures for Germany and Spain suggest that euro-zone headline inflation may have fallen to the ECB’s 2% target in August and that the core rate edged down. That paves the way for a September rate cut, but …
29th August 2024
This page has been updated with additional analysis since first publication. EC Survey suggests economy stagnant The increase in the EC’s economic sentiment indicator for August was largely due to a jump in the measure for France. It still suggests that …
Capital Markets Union (CMU) is regarded by many European policymakers as one of the key reforms needed to close the gap between EU and US productivity. But a full CMU is a long way off, and in any case fragmented capital markets are just one source of …
28th August 2024
China retaliates to EU tariffs on EVs This week the EU announced a series of additional levies on Chinese EV imports on top of those announced a few months ago. China retaliated by making a complaint to the WTO and launching an anti-dumping investigation …
23rd August 2024
Although the EU is making progress in expanding its semiconductor production capacity, including through a new plant in Dresden, it is still a long way behind the US and Asia and is unlikely to catch up anytime soon. This will keep the EU reliant on …
The scale of the fall in negotiated wage inflation in Q2 was largely due to one-off payments made in Germany in March but not repeated in Q2. However, the underlying trend in wage inflation is clearly downwards and is a good reason to expect the ECB to …
22nd August 2024
This page has been updated with additional analysis since first publication. August PMIs still consistent with economic slowdown The rise in the flash PMIs for August is not as good as it looks as it was largely due to a boost from the Paris Olympics and …
There are good reasons to expect services inflation to start falling again towards the end of this year and in 2025. But as long as wage growth remains high, services inflation will stay strong too. This morning Eurostat published the full breakdown of …
20th August 2024
We think the Riksbank will follow today’s 25bp rate cut with a cut at each of the three remaining meetings this year to take the policy rate to 2.75%. But we expect the terminal rate to be 2.5% which will be reached in early 2025. This is higher than the …
Riksbank cut will be followed by one at each remaining meeting this year Alongside the Riksbank’s decision to reduce the policy rate by 25bp today to 3.5%, policymakers also lowered their rate expectation for the end of this year from either 3.25% or 3.0% …
We think concerns about a wage-price spiral in Germany look overdone. The German Institute of Economic and Social Research (IW) suggested that wages in Germany would “shoot up” by 5.6% this year, based on agreements reached in the first six months. This …
16th August 2024
Norges Bank’s decision to leave its policy rate unchanged at today’s meeting, at 4.5%, was never in doubt. However, we still suspect that continued declines in inflation will allow it to start cutting before the end of the year, which would be earlier …
15th August 2024
Norges Bank at risk of falling behind the curve Norges Bank’s decision to leave its policy rate unchanged at 4.5% was never in doubt. We still suspect that continued declines in inflation will allow it to start cutting before the end of the year, which …
Swiss economic growth returns to trend rate Switzerland’s sporting event-adjusted GDP growth accelerated to 0.5% q/q in Q2, its fastest pace in over a year and slightly above our forecast of 0.4%. At the margin this may give the SNB some caution against …
Since the Riksbank’s last meeting in June, Swedish inflation and activity data have been weaker than policymakers expected. We think this will encourage them to cut the key policy rate from 3.75% to 3.5% next week and to indicate at least a further 50bp …
14th August 2024
Euro-zone growth likely to remain weak Data released today confirmed that the euro-zone economy expanded by 0.3% q/q in Q2, but surveys published for July suggest that it may be slowing again. The second estimate of euro-zone GDP in Q2 was unchanged from …
The brief turmoil in global financial markets following the release of weaker-than-expected US payrolls data and a resurgence of concerns about a hard landing there has been the main event of the past week. We think three points are worth making about the …
9th August 2024
Inflation in Norway has continued to fall more quickly than policymakers expected. But with the krone coming under renewed pressure recently, we think they will maintain a hawkish tone next week. At the last meeting, in June, Norges Bank left its policy …
Recent safe haven flows into the franc may have prompted limited FX interventions by the SNB. But we think that the policy rate will remain its main policy tool, even for dampening the franc’s strength. Indeed, we now expect the SNB to cut its policy rate …
8th August 2024
Several organisations have estimated that a universal 10% tariff on US imports, as proposed by Donald Trump, would reduce euro-zone GDP by at least 1%. We think the hit would be much less than 0.5%. We commented previously on the impact that Donald …
We suspect that the boost to euro-zone economic growth from interest rate cuts over the next year or two will be quite small. The ECB is likely to lower its policy rates only gradually and leave them well above pre-Covid levels. So borrowing costs in the …
7th August 2024
German industrial output rebounded in June and may well expand a bit over the coming year or so. But any recovery will be weak and the sector will remain in structural decline. German industrial output rose more than expected in June. Data released today …
The euro-zone data do not scream “rate cut” – the economy is growing at a steady pace and domestic inflation has stabilised at a high level. But we suspect that most ECB policymakers will judge that a cut is justified next month, and recent concerns about …
6th August 2024
Retail sector to pick up over the coming months Retail sales fell in June but we think they will gradually rise over the remainder of the year on the back of strong real household income growth and falling interest rates. The 0.3% m/m decline in retail …
Tourism in the euro-zone is likely to continue growing at a decent pace over the coming quarters due to rising real wages and increased capacity. This will be a particular boon to the southern economies, which in general we think will continue to grow …
5th August 2024
This week saw the publication of a raft of activity and inflation data for the euro-zone. There are two key takeaways in our view. First, the economic recovery remains fragile. Admittedly, GDP expanded by a solid 0.3% q/q in Q2, the same pace as in Q1. …
2nd August 2024
This publication has been updated with additional analysis. Headline inflation steady and to remain around current level for the rest of the year. Switzerland’s inflation rate was unchanged in July at 1.3%, keeping it below the SNB’s Q3 forecast of 1.5%. …
This page has been updated with additional analysis since first publication. Services inflation easing, but still too high for comfort The small fall in services inflation in July is probably just enough for a September rate cut to remain the base case. …
31st July 2024
In detailed analysis last year, we concluded that equilibrium nominal interest rates would settle at between 3% and 4% in advanced economies in the next ten years. We maintain that opinion and in fact some of the forces boosting equilibrium rates seem to …
30th July 2024
This page has been updated with additional analysis since first publication. Services inflation still sticky The increase in German HICP inflation from 2.5% in June to 2.6% in July left it a little higher than expected and means that the aggregate …
This page has been updated with additional analysis since first publication. Recovery continued in Q2 but surveys weakening at start of Q3 The euro-zone’s recovery continued at a moderate pace in Q2 and it should get a small boost from the Paris Olympics …
Recovery slowing National-level data released so far suggests that euro-zone GDP growth slowed to 0.2% q/q in Q2 and the weakening of the surveys in July suggests GDP growth may have eased further this quarter. GDP figures for the euro-zone’s largest …
Tight monetary policy and low consumer confidence have pushed the euro-zone’s household saving rate up to unusually high levels. While interest rates are set to keep falling and confidence might improve, we think that a big decline in the saving rate is …
29th July 2024
Italy has become quicker at spending NextGenerationEU (NGEU) funds over the past year but it is still likely to spend only around two-thirds of the total funds allocated to it unless the programme is extended. Italy is set to receive €194bn (around 10% of …
Economy contracted sharply in Q2, but will return to growth over coming quarters Preliminary data released this morning show that the Swedish economy contracted by 0.8% q/q in Q2, more than offsetting the 0.7% increase in Q1. The data were significantly …
