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Though investors appear to be increasingly moving towards our view of Bank Rate peaking at 5.50%, we think the levels priced into the market beyond this year – and, accordingly, expectations for gilt yields and sterling – are still too high. Today’s …
3rd August 2023
We think the euro-zone economy will contract in the second half of 2023, and the subsequent recovery will be sluggish due to the lagged impact of monetary policy tightening as well as tight fiscal policy. Headline inflation in the euro-zone will continue …
Note: We’ll be discussing the implications of the Bank’s decision for the economy, the housing market and financial markets in a 20-minute online Drop-In at 3pm BST today. (Register here .) Today’s 25 basis point (bps) rise in interest rates from 5.00% …
Closing in on the summit, but BoE suggests rates will stay at the top for a long time Today’s 25bps rise in interest rates, from 5.00% to 5.25% (CE 5.25%, 2/3 of consensus 5.25%, 1/3 of consensus 5.50%), may be followed by another hike in September to our …
We recently held a Drop-in titled “Office Sector Armageddon – Who gets hit hardest?”, which you can view on-demand here . This Update addresses some of the specific European questions we received during the event. Which European cities will do better? At …
Recession likely in H2 The final euro-zone PMIs confirmed that economic conditions deteriorated in July, with the Composite index consistent with GDP declining slightly. We continue to expect the euro-zone economy to fall into recession in the second half …
This page has been updated with charts since first publication. Inflation declines further below 2% Easing core inflation drove headline inflation lower in July, but we don’t expect it to fall much further this year. Despite inflation now sitting within …
One key lesson from the bouts of inflation in the 1970s and 1980s is that core inflation faded only once a loosening in the labour market drove down the job vacancy rate to more normal levels. We estimate that a fall in the job vacancy rate from 3.0% in …
2nd August 2023
Note: We’ll be discussing the implications of the Bank’s decision for the economy, the housing market and financial markets in a 20-minute online Drop-In at 3pm on Thursday 3 rd August . (Register here .) Despite the easing in CPI inflation from 8.7% in …
1st August 2023
This page has been updated with additional analysis since first publication. Tight labour market will only loosen gradually The euro-zone labour market remains extremely tight, with the unemployment rate steady at a record low in June. We expect weakness …
CEE industry continues to struggle, price pressures diverge The manufacturing PMIs for July suggest that industrial sectors generally struggled across the region at the start of Q3, and support our view that economic recoveries in CEE are not about to …
Warsaw industrial rents have seen an unprecedented surge in recent months on the back of strong demand and supply constraints due to the war in Ukraine. And while growth is set to slow significantly from here, we now expect the market to outperform the …
Mortgage rate surge starts to take its toll The slight fall in house prices in July is the first sign of the surge in mortgage rates since mid-May taking its toll. As we expect mortgage rates to remain around their current level for the next 12 months, we …
While we suspect that sticky core inflation in the euro-zone will mean “higher for longer” interest rates there, we think that the ECB will eventually deliver more rate cuts than currently priced into the markets. Along with our dovish view of Fed policy, …
31st July 2023
The message from electric vehicle sales data is now clear: the EV revolution is alive and kicking and poses important implications for oil demand. We are slightly more optimistic on the pace of EV adoption than other forecasters and suspect the drag on …
The 0.3% rise in euro-zone GDP in Q2 was largely due to a huge increase in Ireland’s GDP and the export of a cruise ship from France. Neither of these is a sustainable source of growth. With more of the hit from tighter monetary policy to come, we still …
This page has been updated with charts since first publication. Services inflation rises again, recession still likely July’s inflation data will have been a disappointment for policymakers as, although headline inflation fell in line with expectations, …
This page has been updated with additional analysis since first publication. Note: We’ll be discussing the implications of the Bank’s decision for the economy, the housing market and financial markets in a 20-minute online Drop-In at 3pm on Thursday 3 rd …
Italy from leader to laggard The drop in GDP in Italy in Q2 means euro-zone output probably rose by 0.3% q/q in Q2, and just 0.1% if Ireland is excluded. Italy is no longer outperforming its peers and we think it will experience a sharper drop in output …
Recession over, but recovery likely to be weak The 0.1% q/q expansion in Czech GDP in Q2 took the economy out of technical recession last quarter, but we expect the recovery over the coming quarters to be weak. With inflation likely to continue falling …
Europe benefitted less than the US from information-communications technology between the mid-1990s and mid-2000s because most of the innovative tech firms were based in the US and structural factors slowed the diffusion of new technology through the …
28th July 2023
GDP data released this week suggest that the euro-zone economy held up better than we expected in Q2. Output rose in France and Spain and stagnated in Germany . Together, the national data point to euro-zone GDP rising by 0.4% in Q2 rather than falling …
One consequence of higher interest rates is an increase in the losses that the Bank of England will make via the bonds it bought during its quantitative easing (QE) programme. This week, the Bank published an estimate that it could make a huge £150bn …
H1 2023 was the weakest six months for European investment in over 10 years. And the difficult financing conditions and stretched valuations that have sapped investor sentiment are unlikely to relent much over the rest of the year. Further ahead, even as …
This page has been updated with additional analysis since first publication. Business surveys point to stagnation The small fall in the EC Economic Sentiment Indicator (ESI) in July leaves it consistent on past form with output stagnating and suggests …
Sentiment improves, but is still depressed The European Commission's Economic Sentiment Indicators for Central and Eastern Europe (CEE) generally ticked up in July, but our regional measure still points to weak GDP growth at the start of Q3. Economic …
Germany still the weak link National data released so far suggest that the euro-zone economy held up better than we had anticipated in Q2, with Germany still the laggard among major economies. We continue to think that monetary tightening will take an …
Strong economic growth in France and Spain The big increases in Q2 GDP in Spain and particularly France suggest that the euro-zone has so far coped with policy tightening much better than feared. However, the France data were flattered by temporary …
The ECB’s decision to raise rates by 25bp today and Christine Lagarde’s guidance that another hike was a “decisive maybe” will not have surprised anybody. On balance, we think the Bank will probably nudge rates up to 4% in September or October and keep …
27th July 2023
ECB hikes and leaves options open As was universally expected, the ECB raised interest rates by a further 25bp today and indicated that further hikes are possible but not certain. At the press conference we expect the main message to be that policy will …
25bps hike and peak in sight Reverting to a 25bps hike rather than 50bps Rate hikes may come to a halt a bit sooner than most analysts and investors expect After a lengthy pause, rates to fall further than investors expect in late 2024 and in 2025 We’ll …
The continued rise in the valuations of “risky” assets relative to “safe” ones mostly seems to reflect growing confidence in the economic outlook. We think that optimism will be disappointed and that risk premia may rise again – and valuations may fall – …
26th July 2023
Tighter monetary policy has had a big impact on financial conditions in the euro-zone, but we think its effect on activity is still in its early stages . Even if the region falls into a mild recession, it will be some time before policymakers are …
Russia and Turkey have had a strong first half of the year, but growth across Central and Eastern Europe (CEE) remains depressed and we don’t expect a meaningful recovery until 2024. While inflation pressures are building in Russia and Turkey and further …
Data released this week show that tighter monetary policy has led to a sharp slowdown in money and lending growth, consistent on past form with falling GDP. Together with the latest business surveys, this supports our non-consensus view that the euro-zone …
The Israeli government’s decision to press ahead with its controversial judicial reforms won’t necessarily cause foreign investment into Israel to dry up, but the direction of policymaking threatens to push the economy onto a permanently lower growth …
25th July 2023
Global growth in steel output stagnating Global steel production growth picked up in June, albeit only to a pace consistent with stagnant growth. With the rise in output in China on shaky ground and weak demand beginning to weigh on supply in other …
This page has been updated with additional analysis since first publication. MNB may pause or slow its easing cycle after September Hungary’s central bank (MNB) announced another 100bp cut to its one-day quick deposit rate (the key policy rate at the …
Analysts are split on whether the BoE will repeat June’s 50bps rate hike at the August meeting or revert to the 25bps hikes now favoured by the Fed and the ECB. And the release of the BoE’s new Monetary Policy Report will provide some clues to just how …
This page has been updated with additional analysis since first publication. Germany still in recession at start of Q3 The bigger-than-expected fall in the German Ifo, together with the drop in the PMIs published yesterday, suggest that the German economy …
Euro-zone government bond yields have fallen further following the release of disappointing PMIs today. Given our pessimistic view of the economy, we suspect that they will generally end the year a bit lower still. As euro-zone PMIs for July came in …
24th July 2023
Italy has already accumulated so many delays in spending NextGenerationEU (NGEU) money that it will only be able to use a fraction of the funds and any boost to growth is likely to be much smaller than hoped. Meanwhile, timidness in implementing reforms …
New home construction has been surprisingly resilient to weaker demand so far this year. But that partly reflects activity being brought forward before building standards were tightened in June. With that boost now over and survey data indicating a …
This page has been updated with additional analysis since first publication. Note: Join our special online briefing after the Fed and ECB’s July decisions, and previewing the BoE’s August meeting, at 10:00 EDT/15:00 BST on Thursday 27 th July . Register …
Another election likely after inconclusive poll The People’s Party (PP) won the most seats at yesterday’s general election but, even together with the far-right VOX, they achieved only 169 seats which leaves them seven short of a majority. And given that …
Occupier demand in Amsterdam has been more resilient than we expected so far this year. In tandem with supply constraints caused by construction delays, this suggests that prospects for rental growth are brighter than we had anticipated over the coming …
This page has been updated with additional analysis since first publication. Economy still in recession July’s euro-zone PMIs are consistent with our non-consensus view that the currency union’s economy will remain in recession. But they also suggest …
Despite the fall in CPI inflation from 8.7% in May to 7.9% in June (see here ), the UK is still lumbered with an inflation rate that is 1.4 percentage points (ppts) higher than in the euro-zone. And at 4.8ppt, the gap between UK and US CPI inflation …
21st July 2023
Russian FinMin throwing in the towel? A raft of comments from senior policymakers at the Russian Ministry of Finance this week highlight the pressures that the public finances are under and how policymakers are likely to tighten fiscal policy in response …
In a relatively quiet week for euro-zone economists, the most important release was the final inflation data for June. Unusually, these were revised slightly from the flash release as core HICP inflation is now estimated to have edged up to 5.5% rather …
