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Despite the Riksbank Executive Board insisting that it might raise interest rates again in the coming months, we would be very surprised if it does so. Instead, we think the next move will be a rate cut next May, and expect the Bank to then cut rates …
23rd November 2023
This page has been updated with additional analysis since first publication. PMIs consistent with continued recession Despite the rise in the euro-zone Composite PMI in November, it remained consistent with the economy contracting 0.2% in Q4. (See Chart …
Riksbank peaks at 4% The Riksbank’s decision to leave interest rates on hold at 4.0% today was not a major surprise given that financial markets were pricing in only a 10% chance of a hike while economists were evenly split between a hike and a hold. (We …
We continue to forecast a small fall in euro-zone yield spreads over Bunds in the next year or so. However, rising risks to the upside in recent months and differences in fiscal positions between countries may mean that the relative picture for some …
22nd November 2023
The EU’s criticism of French fiscal policy is not in itself a major concern. But France’s debt-to-GDP ratio may well rise over time rather than declining as the government intends. The key problem is a very large primary deficit which the government plans …
21st November 2023
A German constitutional court ruling this week threatens to force the government to cut its planned climate-related expenditure by €60bn or 1.2% of GDP. The decision states that it was not lawful for the government to reallocate this un-used borrowing …
17th November 2023
Recent developments will have given policymakers at Norges Bank food for thought ahead of December’s interest rate decision. While we had initially rejected the central bank’s guidance that it would hike once more, we now think three key upside risks have …
16th November 2023
While the world’s major central banks now appear to have ended their tightening cycles, we think the Riksbank will raise its policy rate by 25bp again next week, to 4.25%, because of the strength of domestic inflation and weakness of the krona. And we now …
During the past decade, the global economy has transitioned out of an era in which globalisation was the key driver of economic and financial relationships into one shaped by geopolitics. Previously, most governments had believed that closer economic …
This publication has been updated with additional analysis. Output to continue falling Euro-zone industrial production fell in September and is likely to continue contracting in the final quarter of the year, primarily due to weak demand. The 1.1% m/m …
15th November 2023
This page has been updated with additional analysis since first publication. Weak economy will cool labour market from here We do not think the slight acceleration in employment growth in Q3 is a sign of things to come. With business surveys deep in …
14th November 2023
Rise in target measure of inflation supports case for another hike The increase in the Riksbank’s target measure of inflation in October was broadly as anticipated and does not change our view that, while it will be a close call, policymakers are most …
It’s been a busy week in politics on the Iberian peninsula. In Portugal, a snap election has been announced for March 2024 after Prime Minister António Costa was forced to resign amidst a corruption investigation. And after months of negotiations, Spanish …
10th November 2023
This page has been updated with additional analysis since first publication. Jump in inflation not enough to prompt another rate hike Despite the unexpected jump in Norway’s headline and core inflation rates in October, we still think the Norges Bank is …
The ECB’s recent decision to leave interest rates on hold, and its associated communications, confirm that its tightening cycle is now almost certainly over. But despite inflation having fallen sharply, we believe the strength of the labour market, …
8th November 2023
Despite the steepest crash in commercial property values on record, the credit risk and asset quality of European banks’ commercial real estate (CRE) lending is holding up well. Further declines in values mean there could be a further deterioration, but …
This page has been updated with additional analysis since first publication. Sales fall further and more weakness ahead Euro-zone retail sales fell in September and, in our view, will remain weak in the coming months as the economy falls into recession. …
Activity in the euro-zone’s construction sector is declining and the outlook is poor. The latest surveys suggest that construction output will decline by up to 2% q/q in Q4. Given the tightening of financial conditions over the past few years, the …
7th November 2023
Italian households have been the main net purchasers of Italian government bonds recently and we suspect that they will buy a lot more in the coming months. However, the sustainability of Italy’s debt will ultimately depend not on the behaviour of any one …
Worse than expected (again) German industrial production fell much more than anticipated in September and the prospects for the winter months look very poor. The 1.4% m/m fall in industrial production in September (see Chart 1) was worse than expected …
Italy stands out in the euro-zone for its particularly worrying public debt dynamics. The governments of most euro-zone countries could stabilise their debt ratios while running primary budget deficits. But due to Italy’s poor growth prospects and higher …
6th November 2023
This page has been updated with additional analysis since first publication. PMIs underline weak outlook, easing price pressures Final PMIs released today confirmed the preliminary estimates and are consistent with our forecast that euro-zone GDP will …
The Riksbank’s request for a capital injection from the government is not a good look for an independent central bank. But its QE-related losses will be smaller than those of many other central banks: the “bailout” is required because of its accounting …
3rd November 2023
ECB policymakers stressed this week that rate cuts are a distant prospect. Dutch central bank governor Knot said that rates should remain at their current “cruising altitude” for some time. And governor of the Bank of France Villeroy de Galhau noted that …
Wage growth looks to finally be slowing in the euro-zone amid weaker economic growth and falling inflation, but it remains too high for comfort. As a result, we think the ECB will wait until a more marked slowdown becomes evident to begin cutting interest …
The SNB has been uncharacteristically active this week, making a string of announcements about monetary policy, its balance sheet, minimum reserve requirement and lessons from the Credit Suisse debacle. None of these change the big picture, but they do …
2nd November 2023
We think that the decision today by Norges Bank to leave its policy rate on hold at 4.25% signals the end of its tightening cycle. Contrary to the Bank’s communication, we do not expect a hike in December given that inflationary pressures should continue …
This page has been updated with additional analysis Inflation unchanged and set to stay low Swiss headline inflation remained unchanged in October at 1.7% and although the core rate rose for the first time in eight months we expect inflation to stay below …
The prospect of a long period of high bond yields and some signs of fiscal slippage by Prime Minister Meloni’s government have worsened the outlook for public finances in Italy. We now think the debt ratio is likely to increase rather than to fall in the …
1st November 2023
An energy shock caused by an escalation of the war between Hamas and Israel would have obvious similarities with that which followed Russia’s invasion of Ukraine. But we think that ECB policymakers would be less worried about the “second-round” effects on …
31st October 2023
This page has been updated with additional analysis since first publication. Inflation falling as economy flat-lines The euro-zone economy contracted in Q3 and the continued weakness of the surveys at the start of Q4 suggests that the outlook is poor. …
Narrowly avoiding recession The slowdown in French GDP growth from an upwardly-revised +0.6% q/q in Q2 to only 0.1% in Q3 (see Chart 1) was a little better than the consensus and our own forecast (+0.1% and -0.2% q/q) and means GDP was 1.8% larger than …
This page has been updated with additional analysis since first publication. Economy struggling, labour market coming off the boil, price pressures easing October’s business and consumer survey from the European Commission added to the evidence that the …
30th October 2023
“Sick” German economy slipping back into recession The small decline in German GDP in the third quarter and upward revision to the previous two quarters means the economy is not doing quite as poorly as anticipated. But GDP has essentially been stagnant …
This page has been updated with additional analysis since first publication. Pause in the recession Preliminary data released this morning show that the Swedish economy flatlined in Q3 (0.0% q/q) after contracting sharply in the second quarter (-0.8%). …
European natural gas prices have fallen a long way from their 2022 peaks and the possibility of another energy crisis this winter now looks remote. However, prices are still much higher than they were before the pandemic and much higher than in the US – …
27th October 2023
This week’s data releases provide further evidence that the euro-zone is probably in a mild recession. The euro-zone Composite PMI declined to a level consistent with GDP contracting by 0.2% q/q (see here ) and although the Ifo Business Climate Indicator …
Economy still growing but set to weaken GDP data for Spain in Q3 were a bit stronger than expected and showed that the economy was proving more resilient in the face of high interest rates than anticipated. But the outlook is still weak. The 0.3% q/q …
Norges Bank is almost certain to leave its policy rate unchanged at 4.25% next week. And we suspect that, given September’s weak inflation data, it will also soften its language about implementing one final rate hike in December. Next year, we think the …
26th October 2023
Following today’s decision to leave interest rates on hold, the ECB’s tightening cycle appears to be over. We think that rates will stay at their current levels well into next year. The Governing Council did not discuss accelerating the pace of QT today, …
ECB policy rates at a plateau Today’s decision to leave interest rates unchanged, and the tone of the press release, were as expected. There is no mention of ending PEPP reinvestments early or raising banks’ reserve requirements, but in the press …
The euro-zone money and credit data have been very weak all year and September’s data, released this morning, were more of the same. The activity surveys are now turning downwards too, supporting our below-consensus forecasts that the economy contracted …
25th October 2023
This page has been updated with additional analysis since first publication. German economy still contracting The small rise in the Ifo Business Climate Index (BCI) in October still left the index in contractionary territory, echoing the downbeat message …
We expect euro-zone export growth to remain weak in the coming months against a backdrop of slow economic growth in key export markets and a stronger euro. Euro-zone exports recovered well from the pandemic, outperforming the wider economy since late …
24th October 2023
This page has been updated with additional analysis since first publication. PMIs consistent with recession and falling inflation The further decline in the euro-zone Composite PMI in October left it well into contractionary territory and the breakdown …
Data released this week reinforce the case for the ECB to keep rates on hold at its meeting next week . There was more evidence of economic weakness in the construction activity figures, which showed that output fell by 1.1% m/m in August and is likely …
20th October 2023
The ECB is almost certain to leave interest rates unchanged at next week’s meeting. Emphasis will be on monetary policy staying tight for extended period. Bond market sell-off will persuade policymakers to delay decision to accelerate QT. There is …
19th October 2023
This page has been updated with additional analysis since first publication. Fall in inflation in September will not change ECB's tune The breakdown of euro-zone HICP inflation data for September, published today, reveals that there was a significant fall …
18th October 2023
We have recently published detailed analysis arguing that equilibrium interest rates in advanced economies are now higher than they were before the pandemic, and that they will continue to rise over the rest of this decade. (See here .) The key …
17th October 2023
Switzerland’s government looks set to remain largely unchanged after the federal elections this Sunday, and we do not expect a significant change in economic policy. But voters’ grievances about the failure of Credit Suisse will keep the pressure on …
