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We have been forecasting the ECB to cut interest rates by 50bp in December for some time, and we think the case for such a move remains strong. The latest surveys suggest that the economy is hardly growing. November’s Composite PMI points to the economy …
29th November 2024
In an economy where the government is boosting its spending and investment, we need to be extra cautious when interpreting the activity data. This is because there are lots of frequent indicators on private sector activity, but fewer indicators on public …
The ruble’s rollercoaster ride Donald Trump’s election victory has made some form of an end to the war in Ukraine more likely. (For more, see here .) His appointment this week of Keith Kellogg as his Russia-Ukraine envoy also points in this direction. Mr. …
Note: We'll be discussing US climate policy under Trump, Elon Musk, and the future of the Inflation Reduction Act in a Drop-in on Wednesday 4th December 15:00 GMT/10:00 EST . Register here for the 20-minute online briefing. States take the lead on …
While it was widely expected that CPI inflation would rise above the 2.0% target in October, the rebound from 1.7% to 2.3% was stronger than most forecasters had anticipated. And our view is that CPI inflation will rise further, to nearly 3.0% in January …
22nd November 2024
Russia’s war in Ukraine escalates Tensions between Russia and Ukraine escalated this week, with the US shifting its strategy to give Ukraine the go-ahead to use Western-provided long-range weapons on Russian territory and Russia launching an …
Earlier this week, our markets team revised our bond yield forecasts, raising our 10-year US Treasury yield forecast on the back of Trump’s election, but generally lowering our forecasts for euro-zone yields. (See here .) We now forecast the 10-year …
Yet another week of disappointing activity data … The Q3 GDP data released out of Central and Eastern Europe (CEE) this week has only added to concerns about the health of the region’s economies. Poland’s economy contracted by 0.2% q/q , while GDP …
15th November 2024
Today’s GDP release, which confirmed that the economy has barely grown at all since March, is clearly a blow for the government given its pledge to secure the “highest sustained growth in the G7”. This means that while the UK has now surpassed Japan and …
Déjà vu for industrial metals While it is uncertain exactly how Trump will approach tariffs during a second term, China will clearly be in the firing line and commodities could be caught in the crossfire. For context, Chart 1 shows the US’s bilateral …
The focus this week has continued to be on the consequences of the US election results for Europe. So while a lot remains unclear at this stage, it is worth reiterating what we think are the main implications. First, it seems likely that the US will …
End to the war in Ukraine in sight? One of the most important channels through which Donald Trump’s victory in the US election could affect Emerging Europe – and the global geopolitical landscape – is if he seeks to end the war in Ukraine, as he pledged …
8th November 2024
Winston Churchill is supposed to have said that “jaw-jaw” is better than “war-war” and we think European politicians will take the same view when faced with the threat of a trade conflict next year. We set out our working assumption about how a US …
After a big couple of weeks for the UK, the US, the world and global financial markets, we have revised some of our economics forecasts. Due to the policies in the UK Budget (bigger and sooner rises in government spending than taxes, see here ), we now …
CEE struggling, Hungary in a league of its own The Q3 GDP data out of Central Europe this week continued a bleak run of activity data for the region. The Czech economy grew by just 0.3% q/q – in line with our forecast, but some way below the central …
1st November 2024
While the market fallout from Wednesday’s Budget is still a long way from the 2022 mini-budget episode, investors are clearly nervous about the fiscal outlook. Gilt yields have risen sharply since Wednesday’s Budget. The 10-year yield is up about 21 basis …
The main economic news in the euro-zone this week were the stronger-than-expected GDP figures for Q3 and inflation figures for October, as well as a concerted effort by ECB policymakers to play down the need to accelerate the pace of rate cuts. So it is …
Has Poland’s consumer recovery gone into reverse? The downside surprise in Polish retail sales data this week was the biggest at any point in the past decade. (See Chart 1.) In contrast to expectations for a slight slowdown in growth to +2.0% y/y in …
25th October 2024
This week’s news has persuaded us that the ECB is likely to cut interest rates further and faster than we previously thought. We now see a greater-than-even chance of a 50bp rate cut in December, and think the “terminal” rate in this cycle will be below …
Why does the new rule allow more borrowing? The Chancellor, Rachel Reeves, has confirmed that in next week’s Budget she will shift from targeting the Public Sector Net Debt excluding the Bank of England (PSND Ex BoE) measure of government debt to another …
External developments: the good, the bad & the ugly The current account data released across the region over the past week show that external positions have continued to improve in some countries (notably Turkey), while in others they are deteriorating …
18th October 2024
Until now, all the focus has been on the Chancellor’s £22bn fiscal “black hole”. This week a different, bigger, number hit the headlines: a £40bn “funding gap”. Why the change? A crucial distinction is the time period they relate to. The £22bn “black …
The euro-zone construction output data for August, released earlier today, were the final activity data to be published ahead of the preliminary euro-zone Q3 GDP data release in two weeks’ time. While activity data for the third quarter have been a mixed …
Some encouraging signs in the latest CPI data The batch of September inflation data out of the region this week offered some welcome signs for central banks. In Hungary, the headline rate fell to 3.0% y/y – its lowest rate since January 2021 and slightly …
11th October 2024
It makes sense that businesses and households are getting jittery ahead of the Budget on 30 th October. After all, it’s no secret that taxes will rise. This explains the falls in both business and consumer confidence in September. (See Chart 1.) (Our …
France needs austerity Having survived a vote of no confidence on Tuesday evening, on Thursday France’s government presented its 2025 budget. The key points had been well signposted in advance: €60bn of savings next year, equivalent to 2% of GDP, made up …
Israel’s economy has frequently bounced back from conflict throughout its history, but developments over the past week have raised the risk of permanent scarring to the economy from the ongoing hostilities across the Middle East. The latest ratcheting up …
4th October 2024
Oil spikes, but won’t knock the BoE off course On its own, the jump in oil prices from $72 per barrel (bp) on Monday to a one-month high of $79pb due to the conflict in the Middle East (see here and here ) isn’t enough to have a bearing on how fast the …
France’s prime minister, Michel Barnier, revealed his hand this week – or at least he showed some of his cards – as he set out plans to fill the hole in the country’s public finances. He has given himself a bit more time to bring the deficit down to the …
Global headlines this week have been dominated by the escalating conflict in the Middle East and attention is now focussed on Israel and the scale and nature of its response to Iran’s retaliatory attack on Tuesday. From a macro perspective, the key risk …
3rd October 2024
The trouble with European green policy Mario Draghi’s report on EU competitiveness , published this month, provided food for thought on the EU’s decarbonisation strategy. There were a couple of key points of discussion. First, Mr Draghi emphasised the …
30th September 2024
Fiscal risks in Romania continue to build Romania’s fiscal watchdog this week warned that the country’s budget deficit could come in at 8.0% of GDP this year. This is significantly above the government’s original target of 5.0% and also above its new …
27th September 2024
Government hinting about more investment The government appears to be laying the ground for a rise in public investment in the Budget on 30 th October. This week the Chancellor said “growth is the challenge and investment is the solution.” That was …
A 25bp interest rate cut by the ECB at its next meeting in mid-October is now more-or-less fully priced into the market. The decision will be a close call, but a cut is far from a foregone conclusion. Our base case remains that the Bank will wait until …
The contrast between the Bank of England keeping interest rates on hold at 5.00% this week, along with the accompanying message that it will cut interest rates only gradually, and the US Fed kick-starting its easing cycle with a big 50 basis point (bps) …
20th September 2024
Note: We’ll be discussing key takeaways from our Europe Economic Outlook, including the scope of Germany’s downturn, in a Drop-In on Tuesday, 24th September . Register here for the 20-minute online briefing. The US Fed’s decision this week to cut interest …
Storm Boris floods Central Europe The flooding in Central Europe over the past week has been described as the worst in the region in the last two decades and our thoughts are with those affected. The most heavily impacted areas have been in Poland, …
The Office for Budget Responsibility’s (OBR) “Fiscal risks and sustainability report”, published this week, showed that if left unchecked the public debt to GDP ratio would spiral from 98% now to 274% by the mid-2070s. Assuming a recession comes along …
13th September 2024
The ECB’s easing cycle continued this week and the first Fed rate cut is just around the corner, but we still think that central banks in Central and Eastern Europe (CEE) are now at the beginning of a slower phase of their easing cycles and will loosen …
The main event of this week was the ECB’s meeting on Thursday, where the Bank cut its deposit rate by 25bp, to 3.5%, as widely expected. Christine Lagarde made clear in the press conference that further rate cuts are on the cards, but she gave little away …
The lingering concerns over whether the US manufacturing sector and overall economy are heading for recession begs the question of whether the UK’s manufacturing sector and overall economy will go the same way. The fear is that the recent period in which …
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 …
Turkish officials expecting a goldilocks rebalancing The medium-term economic programme presented by Turkey’s government this week highlights that policymakers remain committed to orthodox policies to deal with the country’s large macroeconomic …
The Prime Minister’s statement this week that “there is a budget coming in October, and it’s going to be painful…those with the broader shoulders should bear the heavier burden” has prompted yet more speculation about how much tax revenues will rise and …
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 …
Further signs of fiscal complacency in Poland The Polish government’s draft budget for 2025 announced this week suggests that fiscal policy will be more expansionary than we had previously expected next year. While that poses an upside risk to our …
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
Ukraine’s surprise incursion Ukraine’s incursion into Russia continued this week. Ukraine found a weak spot in Russian defences two weeks ago and mobilised resources to exploit it. The scale of the incursion is significant, with some suggesting that …
At first glance, the 1.1% m/m increase in Adzuna job vacancies in July, the first monthly rise this year, together with the fall in the unemployment rate to 4.2% in June and the 127,000 rebound in employment between April and June, suggests the recent …
Ceasefire seems a long way off Despite the US government’s efforts to push for a ceasefire agreement between Israel and Hamas this week, a deal seems some way off. The economic spillovers from the war in Gaza have been largest for the economies of Egypt, …
22nd August 2024
