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The February money and credit data show that even before the recent pressure on European banks, net bank lending was extremely weak and consistent with the economy contracting sharply. February’s money and credit data, published this morning, pre-date the …
27th March 2023
Resilience unlikely to last The fifth successive monthly increase in the Ifo Business Climate Index (BCI) in March suggests that Germany is still benefitting from falling energy prices and easing supply problems but has yet to feel the full effects of …
Resilience unlikely to last The fifth successive monthly increase in the Ifo Business Climate Index (BCI) in March suggests that Germany is still benefitting from falling energy prices and easing supply problems and has yet to feel the full effects of …
A few key points on Europe’s banks We discussed the recent turmoil in the banking sector in a Drop-in this week. (See here , or you can listen to a shorter version on our podcast here .) The big picture is that there are reasons to be cautiously …
24th March 2023
The EU’s Net-Zero Industry Act announced last week aims to keep the manufacture of clean technologies within the EU and shows that global fracturing will take place within blocs as well as between blocs over the coming years. But the bigger picture is …
Strong PMIs point to further ECB hikes The strong batch of euro-zone flash PMIs for March suggests that the economy expanded in Q1 and that both employment conditions and price pressures remained very strong. That adds to the reasons to think that, as …
Strong PMIs point to further ECB hikes The strong batch of euro-zone flash PMIs for March means it is now all but certain that the economy expanded in Q1 while both employment conditions and price pressures remained very strong. With the banking turmoil …
While the Credit Suisse rescue might draw a line under that particular institution’s problems, it is clear that confidence in the financial sector overall is still extremely fragile. So regardless of whether more financial institutions run into trouble, …
20th March 2023
Credit Suisse solution raises new questions The uncertainty over the long-term viability of Credit Suisse ended over the weekend when it was acquired by UBS – the solution which at face value offers the best chance of re-establishing stability in the …
Euro-zone bank equities have come under severe pressure this week after troubles at some US regional banks and at Credit Suisse raised concerns about the health of banking systems more generally. At the time of writing, the Eurostoxx bank index is down …
17th March 2023
Core inflation and wage growth strong The strength of wage growth and core inflation will reinforce ECB policymakers’ conviction that, provided the region’s banks don’t come under further sustained pressure, their tightening cycle is not over. It came as …
Investors have taken today’s 50bp rate hike by the ECB as dovish, and the peak deposit rate now priced into markets is between 3% and 3.25%. We think the risks are skewed towards rates going higher than this and the economy performing much worse than …
16th March 2023
ECB prioritises inflation fight The ECB’s decision to raise interest rates by 50bp today was the riskiest of the available options – we think investors would have understood if the Bank decided to pause. But the Bank has hinted that it could offer new …
Just when financial markets appeared to be calming down after the SVB saga, the sell-off in European bank shares has resumed this morning due to concerns about the viability of Credit Suisse. At this stage, a huge amount is unclear, but a few points are …
15th March 2023
Resilience in January unlikely to last The rise in industrial production in January was entirely due to strong growth in Germany and Ireland, with all other major euro-zone economies recording a fall in output. We expect industry to struggle this year as …
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 …
10th March 2023
50bp hike looks a done deal. New guidance likely to explicitly point to higher for longer policy rates. No more news on QT next week, but we expect it to accelerate in July. We expect the ECB to raise interest rates by 50bp next week and accompany that …
9th March 2023
Recent evidence about the health of the euro-zone economy has been mixed. National figures released so far suggest industrial production rebounded in January but retail sales remained very weak. And while activity surveys now point to a small expansion …
8th March 2023
Euro-zone flirting with recession Revised figures show that the euro-zone economy flatlined in Q4 last year and that domestic demand dropped sharply. There have been some positive signs in the past couple of months, but policy tightening is likely to …
Industrial rebound, but recession still coming The big rebound in German industrial output in January suggests that industry may continue to hold up well in the face of the energy crisis. However, with the renewed drop in retail sales pointing to …
Industrial rebound, but recession still coming The big rebound in German industrial production in January suggests that industry may continue to hold up well in the face of the energy crisis. However, with the renewed drop in retail sales pointing to …
Germany is more vulnerable than most advanced economies to a reduction in trade with China both because of the scale of trade and the use of Chinese-made inputs to its large manufacturing sector. We have highlighted in our Spotlight series that the …
6th March 2023
Sales up in January but trend is still down January’s rise in euro-zone retail sales was not enough to offset December’s fall. And the low levels of household confidence suggest that consumption will decline in the coming months. The national-level data …
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 …
3rd March 2023
PMIs point to resilience, especially in services February’s final Composite PMIs suggests that economic activity in the euro-zone has been fairly resilient in February, with the indices for Spain and Italy, and for the services sector, particularly …
The account of the ECB’s last meeting is consistent with our view that the ECB will raise its deposit rate to 3.0% a fortnight today and continue hiking beyond that. In light of the data released since the last meeting, there are growing upside risks to …
2nd March 2023
Strength of core inflation means ECB has a long way to go February’s increase in core inflation will reinforce ECB policymakers’ conviction that significant rate increases are needed. For some time we have been forecasting a 50bp hike at the meeting in …
Euro-zone HICP (Feb.) Strength of core inflation means ECB has a long way to go February’s increase in core inflation will reinforce ECB policymakers’ conviction that significant rate increases are needed. For some time we have been forecasting a 50bp …
Renewed rise in inflation will worry ECB The renewed rise in headline inflation in Germany, France and Spain in February suggests euro-zone inflation edged up this month, rather than falling as had been expected. With signs that underlying inflationary …
1st March 2023
Pandemic savings won’t rescue the economy The value of savings that households built up during the pandemic has been wiped out by inflation. Rising interest rates, together with a desire to rebuild the spending power of their savings, suggest that …
28th February 2023
Recovery in business sentiment falters The stabilisation of the EC’s economic sentiment indicator in February contrasts with the significant increases in the PMIs and provides some support for our view that the economy will struggle this year. It also …
27th February 2023
The effects of tighter monetary policy are clear in the money and credit data. Households and firms have continued to lock their money up in longer-term deposits which are less likely to be spent, and lending growth has slowed very sharply. This paints …
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 …
24th February 2023
Economy much weaker than thought in Q4 The downward revision to German Q4 GDP means the hit to activity at the end of last year was closer to our original expectation. It also suggests a technical recession in Germany during Q4 and Q1 is likely. Today’s …
The surprise upward revision to euro-zone core inflation in January, to a new record high, will embolden the majority of ECB policymakers who want to press on with significant further rate hikes. The upward revision to January’s euro-zone headline …
23rd February 2023
German inflation mystery continues The final release of German HICP for January confirmed that the headline rate fell but, disappointingly, still didn’t reveal what happened to the core rate. That said, there was some evidence that underlying price …
22nd February 2023
The sharp fall in European electricity prices sets the stage for a recovery in metals output across the region. As power prices are still historically high and unlikely to fall that much further, however, the potential for a full and rapid recovery is …
Further improvement, but headwinds still strong The further rise in the Ifo in February confirms that the German economy may have been a bit more resilient than we had expected in Q1. But with the index still in recessionary territory and the drag from …
The euro-zone’s Composite PMI was much stronger than expected in February, but it excludes the construction sector where prospects are weaker. Tighter financial conditions and softer demand in the region as a whole, together with the removal of generous …
21st February 2023
Sentiment continues to improve The ZEW indicators point to a further improvement in sentiment towards Germany and, along with other recent surveys, suggest that the economy is holding up better than we had anticipated. The rise in the ZEW economic …
Economy growing, price pressures remain strong February’s chunky rise in the euro-zone Composite PMI suggests that the economy will grow in Q1. With the labour market still very tight and price pressures strong, the survey will reinforce ECB …
Economy growing, price pressures remain strong February’s chunky increase in the flash euro-zone Composite PMI highlights the continued resilience of activity and suggests that the economy will grow in Q1. With the labour market still very tight and price …
Q uantitative tightening and the repayment of TLTROs mean that the ECB’s assets are likely to decline by around one quarter by the end of 2024. We expect the repayment of TLTROs to have a negligible macroeconomic impact. QT should also proceed smoothly, …
20th February 2023
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. …
17th February 2023
We think French wage inflation will remain much stronger than in the pre-pandemic period this year. This is not least because of the automatic adjustments to inflation of the minimum wage and negotiated wages engrained in the French system. Charts 1 …
16th February 2023
Economy struggling at the end of last year The fall in euro-zone industrial production and imports in December further highlights the weakening in the economy at the end of last year. We expect the economy to enter a recession this year as the squeeze on …
15th February 2023
Recession looming Confirmation that euro-zone GDP growth slowed to a crawl in Q4 does not alter our view that the region is now falling into recession. That said, we think the labour market will continue to hold up well. The second estimate of Q4 GDP …
14th 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 …
10th February 2023
German inflation statistics debacle continues The main takeaway from German flash inflation figures for January, which were finally released today after a week of delay, is that headline inflation in both Germany and the euro-zone fell further in January, …
9th February 2023
