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The view that interest rates in developed markets may rise further and stay higher for longer than previously anticipated gained further traction this week following US Fed Chair Jerome Powell’s hawkish comments on Tuesday. Our US Economics team revised …
10th March 2023
GDP shrank in Q4 (to two decimal places) The third estimate of euro-zone GDP in Q4, released earlier this week, strengthened our conviction that the economy will underperform most forecasters’ expectations. The 0.1% q/q expansion in GDP in the fourth …
We have revised up our forecasts for real GDP and no longer think the economy will be quite as weak. This has very little to do with the 0.3% m/m rise in real GDP in January released this morning. Most of that was a rebound after the widespread strikes …
Brexit looking a bit brighter The economic developments this week were generally positive, starting with news that the Prime Minister, Rishi Sunak, struck a deal with the EU on trading arrangements for Northern Ireland, officially known as the Windsor …
3rd March 2023
Another inflation surprise… The focus this week was on yet another higher-than-expected inflation print. The headline inflation rate edged down in February, but only to 8.5%, whereas a much bigger fall had been anticipated. And the core measure rose …
Russia’s economy defied expectations in 2022 Russia’s war in Ukraine, which marks its one year anniversary this week, fundamentally changed the geopolitical and economic landscape in the region. From a macroeconomic perspective, one of the more surprising …
24th February 2023
The more hawkish tone in financial markets this week is justified. Prior to this week, investors seemed to be optimistic that the previous increases in interest rates would be enough to bring inflation back down to the Bank of England’s 2.0% target, and …
After the US and the UK, it was the euro-zone’s turn to release better-than-expected activity data this week. Admittedly, we learned that German GDP fell by 0.4% q/q rather than 0.2% in Q4. This means the euro-zone economy probably stagnated in Q4 …
In a previous edition of the UK Economics Weekly we said that the CPI core services inflation and private sector pay figures released this week would prove pivotal in determining whether the Bank of England raises interest rates further or calls time on …
17th February 2023
Tough times ahead for CEE, after Q4 contraction … Q4 GDP data released across Central and Eastern Europe (CEE) this week were a mixed bag, but show that the regional slowdown at the end of 2022 was (broadly) as we had anticipated. We now know that the …
The ECB’s doves have been pretty quiet for the past few months, but Fabio Panetta – who is probably the most influential one these days – gave a moderately dovish speech this week. Among other things, he suggested that inflation may already have peaked. …
It doesn’t really matter if the economy was in recession last year or not (although according to the technical definition it was not). (See here .) Two other factors are more important. First, recession or no recession, the economy is weak. Real GDP …
10th February 2023
Hawks singing the same tune At February’s ECB meeting, policymakers were unwilling to commit to raising interest rates further beyond the promised 50bp hike in March. But their comments this week show a clear intention to do so. Table 1 summarises some …
With the dust now settled after yesterday’s ECB meeting, it is clear investors have stuck with their dovish interpretation of the decision. They now expect the deposit rate to peak at around 3.4%, rather than 3.6%. (See Chart 1.) Meanwhile, 10-year …
3rd February 2023
Turkish policymakers deepen de-dollarisation Turkish policymakers deepened their “lira-isation” drive this week by increasing the incentive for firms to convert their FX into lira, but we’re not convinced that the policy changes will be successful and …
27th January 2023
Outlook better, but still bad There has been a marked improvement in sentiment towards the euro-zone recently as activity indicators have come in stronger than expected. Euro-zone GDP now looks likely to have flat-lined in the fourth quarter and January’s …
Whither the Norwegian krone? Norway’s position as a major oil and gas exporter means that movements in its currency are typically correlated with moves in energy prices. But since the start of 2021, the krone has failed to keep pace with the rise in oil …
The recent persistence of inflation leads us to think that the Bank of England will proceed with another 50 basis point (bps) rise in Bank Rate, from 3.50% now to 4.00% next Thursday. (See here .) We will be discussing the policy outlooks for the BoE, the …
CPI inflation is falling and the Bank of England Governor, Andrew Bailey, sounded optimistic this week when he said that “a corner had been turned on inflation”. But he and most other Monetary Policy Committee (MPC) members will probably still be …
20th January 2023
The improvement in recent data and brightening outlook continues to be the key talking point for euro-zone-watchers. In brief, it looks as if euro-zone GDP may not have contracted in Q4 2022 after all, and the prospects for this year have brightened …
It’s remarkable that the economy appears to have avoided a recession (defined as two consecutive quarters of falling real GDP) in 2022. Most economists thought that the recession began in Q2 2022 as back in August the ONS estimated that real GDP fell by …
13th January 2023
After months of gloom, there seems to be some newfound optimism about the euro-zone’s economic prospects. Commentary about the euro-zone economy has turned more positive. And this year’s rally in euro-zone financial markets probably at least partly …
The past few weeks have brought the news that the UK economy is lagging even further behind its G7 counterparts. (See here .) One reason for this relative underperformance is real business investment, which accounts for 9.5% of real GDP and in Q3 was …
6th January 2023
The narrative surrounding Europe’s energy crisis has completely shifted in recent weeks as warmer-than-normal winter temperatures have reduced heating demand and pushed gas prices down sharply. This will help to improve external positions and lower …
Inflation is on its way down Headline inflation in the euro-zone has probably passed its peak. (See here .) Admittedly, core inflation rose to a new record high in December, with both services and core goods inflation increasing in y/y terms. Core goods …
This week we learned that the economy contracted by more than we previously thought in Q3. The 0.2% q/q fall in real GDP in Q3 was revised down to a 0.3% q/q decline. More striking is that real GDP was a huge 6% below our pre-pandemic forecast in Q3. …
23rd December 2022
A ceiling agreed but with lots of caveats We don’t think the EU announcement of a cap on wholesale gas prices from February next year will have any practical impact. At first sight, the mechanism looks like a big deal. The ceiling of €180/MWh is much …
22nd December 2022
Jump in money supply won’t worry the SNB Swiss money supply data for November, released earlier this week, showed that M3 increased at its fastest year-on-year pace since February. (See Chart 1.) This could, at least in theory, encourage policymakers to …
Hungary strikes last minute deal, but risks remain The EU’s approval of Hungary’s COVID-19 recovery plan this week is a welcome development for Hungary’s economy and financial markets, but it won’t immediately transform the near-term outlook. On Monday, …
16th December 2022
ECB a long way from pivot… Thursday’s ECB meeting has sparked significant turmoil in euro-zone financial markets. Ten-year Bund and BTP yields recorded some of their largest one-day rises in the past decade and are up ~25bp and ~50bp respectively from …
We think the three main economic themes of 2023 will be falling inflation, peaking interest rates and recession. We explained these forecasts in detail in our recent UK Economic Outlook , which carried the title a “A tough year”. (See here .) In short, …
Hungary’s fuel crisis reaches breaking point Hungary’s government was forced to abandon its cap on petrol and diesel prices earlier this week as fuel shortages intensified across the country. The cap had been introduced at the end of last year and has …
9th December 2022
If you haven’t started your Christmas shopping, you may not be alone. Both the CBI Distributive Trades Survey and the CHAPS spending data point to a fall in retail sales volumes in November. The BRC/KPMG Retail Sales Monitor, which has a somewhat …
Wage growth peaking? Policymakers at the ECB will have taken some heart from the latest wage data published by Indeed. The data track pay offered in job adverts and they have shown a rapid acceleration over the past 18 months or so. But at least on …
This week’s data releases showed that higher interest rates are starting to influence the economy. This means that at some point the Bank of England will have to start to think more about the appropriate level of interest rates rather than the pace of …
2nd December 2022
Off the peak? The big event this week was the publication of flash inflation data which showed that, after rising for seventeen months in succession, headline inflation fell from 10.6% in October to 10.0% in November. (See here .) This was lower than we …
ECB officials were out in force again this week, disseminating clues about the size of the next rate hike and their plans on quantitative tightening (QT). Their comments suggest that a slowdown in the pace of tightening, from a 75bp to a 50bp hike, …
25th November 2022
The most eye-catching statistic published this week was the net migration into the UK of 504,000 people in the year to June 2022. That’s a record high. It continued the recent trend of net inflows from the non-EU and net outflows to the EU. And it …
Official data to fall into line with surveys We doubt that the recent strength in some of the official euro-zone activity data will last. GDP posted a small expansion in Q3, whereas both we and the consensus had expected zero growth. (See here .) And …
18th November 2022
US CPI number triggers euro-zone rally Euro-zone financial markets rallied yesterday after US inflation data for October came in lower than expected. Immediately after the data release, Bund yields fell by around 15bp and the euro and DAX rose by 2-3%. …
11th November 2022
NBP divided on the length of its tightening cycle The divergent views among policymakers at the National Bank of Poland (NBP) make it increasingly difficult to tell whether the central bank’s tightening cycle is coming to an end. We expect the NBP to …
4th November 2022
ECB Governing Council members had a busy week, with just under half of them giving speeches or interviews on the outlook for monetary policy. There are four key takeaways from their comments. First, rates will rise further. All policymakers who spoke …
Falling inflation may keep SNB in check The reductions in headline and core inflation in Switzerland in October confirm that inflation has now passed its peak, and both measures look set to continue on a downward path next year. (See here . ) We don’t …
The reports that the Chancellor, Jeremy Hunt, will unveil in his Autumn Statement on 17 th November a fiscal tightening of up to £50bn by 2026/27 (1.7% of GDP) suggest that after a period in which fiscal policy has provided the economy with support, it is …
28th October 2022
In general we think the data released this week are consistent with our three key calls on the euro-zone. The first is that the region is heading for a deeper recession than most anticipate. Our forecast is for a 1.8% decline in GDP in 2023 is below both …
We published our Q4 Nordic & Swiss Economic Outlook this week. The key points are that we expect Switzerland, Sweden and Denmark to suffer recessions, while Norway might escape with only a sharp slowdown. But inflation will remain high in the Nordics and …
The main message from our latest quarterly Euro-zone Economic Outlook , which we published this week, is that we now expect the euro-zone to experience an even more extreme case of stagflation. We now forecast both headline and core inflation to average …
21st October 2022
Governing Council members were out in force this week giving their euro cent’s worth on the monetary policy outlook. Sifting through the various comments, there are three main takeaways. First, even the most hawkish are not prepared, in public at least, …
14th October 2022
A raft of economic data for Sweden published this week added to the evidence that its economy is slowing and, like most of Europe, heading for a recession this winter. The 1.3% fall in Statistics Sweden’s monthly GDP indicator in August was the biggest …
7th October 2022
Strong case for even bigger rate increase The case is growing for the ECB to step up the pace of tightening further at its meeting in three weeks. The account of last month’s ECB meeting, published on Thursday, showed that policymakers expect to keep …
