Filtered by Subscriptions: Europe Economics Use setting Europe Economics
Core inflation dips below 9% The fall in Sweden’s measure of core inflation to 8.9% in March suggests that it may now be passed its peak. But it is still much higher than the Riksbank had anticipated at its February meeting and does not change our view …
14th April 2023
We think that the recent stress in the banking sector has had little impact on the outlook for monetary policy in the euro-zone. While there were significant outflows of bank deposits in the five months ending in February, that was due to higher …
11th April 2023
Rise in core inflation makes 25bp hike in May very likely March’s inflation data make it all but certain that the Norges Bank will press on with its planned 25bp rate hike at the next meeting in May. The increase in headline CPI inflation from 6.3% in …
Commercial real estate (CRE) has become an area of particular concern against a backdrop of higher interest rates and a pandemic-induced reduction in demand for office space. Sweden’s economy looks particularly vulnerable to a downturn in the sector for …
6th April 2023
Expansion in Q1 likely… After stagnating in Q4, euro-zone GDP probably rose in the first quarter. The final Composite PMI , released this week, confirmed that economic conditions improved further in March (though a bit less than implied by the flash …
Industrial resilience won’t prevent recession The second consecutive big increase in German industrial production in February all but confirms that GDP returned to growth in Q1. The industrial resilience may continue in the coming months but we still …
Surveys point to expansion in Q1 March’s PMIs suggest that the economy expanded in Q1. They also point to further gains in employment and strong price pressures. With the turmoil in the banking sector having stabilised, this makes us more confident in our …
5th April 2023
March’s sharp fall in headline inflation in Switzerland will provide some relief for the SNB as the decrease was spread across a wide range of goods. However, underlying price pressures remain strong by Swiss standards and we expect the SNB to hike …
3rd April 2023
This time last week the markets and financial media were worrying about the future of Deutsche Bank. German Chancellor Olaf Scholz publicly stated that the bank was “very profitable” and President Macron declared that the European banking sector as a …
31st March 2023
Less than two weeks have passed since the demise of Credit Suisse so it is too early to draw many lessons about the implications (if any) for the global banking sector. But the speed of the collapse of a bank which had passed the key financial health …
Headline rate falling but strength of core inflation will keep ECB hawkish Policymakers at the ECB won’t read too much into the drop in headline inflation in March and will be more concerned that the core rate hit a new record high. So March’s consumer …
Headline rate falling but strength of core inflation will keep ECB hawkish Policymakers at the ECB won’t read too much into the drop in headline inflation in March and will be more concerned that the core rate hit a new record high. Overall, March’s …
Headline inflation tumbling, core peaking The big falls in headline inflation in Germany and Spain should provide some relief for struggling households in the coming months. And core inflation in Germany may now have passed its peak. However, with …
30th March 2023
Business surveys point to small expansion in Q1 The small decline in the EC’s economic sentiment indicator in March leaves it still pointing to an increase in GDP in Q1. Meanwhile, firms’ selling price expectations suggest that core inflation might be …
Overview – The euro-zone economy is set to perform much worse than consensus forecasts suggest over the next two years, with a recession looking likely. That is mainly because monetary policy and bank lending conditions are tightening. We expect …
28th March 2023
We doubt that the banking sector crisis which has hit US regional banks and Credit Suisse will morph into a sustained or systemic problem for the euro-zone’s banks. However, there may well be further “idiosyncratic” problems and adverse sentiment towards …
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
Norges Bank and SNB raise rates Undeterred by global banking turmoil, the Norges Bank and SNB focused on inflation this week and – in line with decisions by the ECB, Bank of England and the Fed – raised interest rates. The Norges Bank lifted its policy …
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 …
This morning’s 50bp interest rate hike by the Swiss National Bank (SNB), to 1.50%, was in line with expectations and shows that, like the ECB and Fed, Swiss policymakers have not been distracted from their inflation-fighting task by problems in the …
23rd March 2023
The Norges Bank’s 25bp rate hike today was accompanied by new verbal guidance that it is likely to raise rates further in May. Together with the new, higher interest rate forecast, this supports our view that the policy rate will peak at 3.5% and stay …
SNB looks through Credit Suisse turmoil and hikes by 50bp This morning’s 50bp interest rate hike by the SNB, to 1.50%, was in line with expectations and shows that, like the ECB and Fed, Swiss policymakers have not been distracted from their …
Norges Bank not done yet The Norges Bank’s 25bp rate hike was accompanied by new guidance signalling that it is likely to raise rates further in May. Together with the new, higher interest rate forecast, this supports our view that the policy rate will …
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 …
As we commented here , Credit Suisse’s problems are in principle a bigger threat to the global economy than those of the regional US banks that failed last week. Its balance sheet is more than twice as large as that of Silicon Valley Bank, for example, …
17th March 2023
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 …
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 …
We don’t think the collapse of SVB, problems at Credit Suisse and volatility in markets will deter the Norges Bank from raising its policy rate by 25bp next week, to 3.0%. If anything, the risks are skewed towards a 50bp hike. And we think the policy rate …
We think the SNB will push ahead with rate hikes despite the Credit Suisse crisis, and raise the policy rate by 50bp to 1.5% next Thursday. By its own exacting standards, inflationary pressures in Switzerland are acute with core inflation reaching its …
16th March 2023
This dashboard tracks medium-term inflation expectations in the US, euro-zone and UK. In a world where the Phillips curve is flat, inflation expectations become the key driver of actual inflation over the medium term. But getting a true handle on …
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 …
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 …
Soaring core inflation adds to pressure on the Riksbank Although it was partly due to higher food prices, the jump in the “core” measure of inflation in Sweden to 9.3% will reinforce policymakers’ determination to raise rates further. We expect another …
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
A closer look at Swiss inflation We learnt this week that Swiss headline inflation rose from 3.3% in January to 3.4% in February, driven by core inflation which increased by 0.2%-pts. (See here .) But the growth in underlying prices pressures appears to …
Lower inflation means Norges Bank can stick to 25bp hikes February’s decline in headline and core inflation takes some of the pressure off the Norges Bank and means that it is likely to hike by 25bp at the meeting in two weeks’ time. After surprising on …
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 …