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On Tuesday we held a Drop-in on the outlook for the German economy. This Update summarises the key points that we discussed and answers some of the questions that we received during the event. 1. Do the Q1 GDP data mean Germany is out of recession? The …
2nd May 2024
Swiss CPI jumps, but will fall in the coming months The jump in Switzerland’s inflation rate in April was largely due to increases in the volatile food and fuel components. While the data increase our confidence that the SNB will not cut interest rates at …
The anti-dumping duties that the EU is likely to impose on Chinese imports in the coming months will have little macroeconomic impact. But more goods will be targeted in the next couple of years with significant implications for some sectors and …
30th April 2024
Strong GDP data will not stop June rate cut Today’s stronger-than-expected Q1 GDP data means the euro-zone has come out of recession but, with core and services inflation both declining in April, this will not prevent the ECB from starting its easing …
A strong start to 2024 The national-level data released so far this morning suggest that euro-zone GDP, which will be published in just under an hour, will show an expansion of 0.3% q/q in Q1. All of the euro-zone’s largest economies grew in the first …
This page has been updated with additional analysis since first publication. Survey points to stagnant economy and still-high price pressures The weaker-than-expected EC business and consumer survey for April is a reminder that the euro-zone economy is …
29th April 2024
Recovery in activity won’t stop ECB rate cuts This week brought some more evidence that the euro-zone economy is coming out of recession. The euro-zone Composite PMI rose more than expected in April, to a level consistent with GDP expanding slightly. …
26th April 2024
The continued decline in core inflation will make it difficult for Norges Bank to stick to its current guidance that it will leave interest rates unchanged until Q4. We suspect that the Bank will change its forward guidance next week to acknowledge the …
Spanish house prices have risen 5% over the last two years despite rising interest rates. The relative affordability of houses in Spain is the main reason that the market remains strong, but the resilience of foreign demand for houses and a rising …
25th April 2024
This page has been updated with additional analysis since first publication. Signs of life for the German economy The rise in the German Ifo in April, together with the jump in the Composite PMI in the same month, suggests that the German economy may be …
24th April 2024
Euro-zone coming out of recession The bigger-than-expected increase in the Composite PMI for April suggests that the euro-zone is coming out of recession, but this will not prevent the ECB from cutting interest rates in June. The increase in the euro-zone …
23rd April 2024
Movements in the exchange rate tend to have only a small impact on euro-zone inflation. So while the euro might weaken if monetary policy in the euro-zone and US were to diverge, we think it would take a big move in the exchange rate to have a significant …
19th April 2024
Note: We’ll be discussing the outlook for monetary policy in the euro-zone in a Drop-In on Thursday, 25th April. Register here for the 20-minute online briefing. The financial news this week has been dominated by the potential impact of the Middle …
Germany’s manufacturing sector has been in relative decline since around 2017. We think it will continue to shrink in the coming years and expect productivity growth in the sector to remain relatively low by past standards. As a result, the sector’s …
18th April 2024
We think it is most likely that future governments bring down Belgium’s budget deficit sufficiently to put its debt on a sustainable trajectory. However, the risks are that the deficit is higher than we forecast because of Belgium’s divided political …
17th April 2024
The detailed breakdown of March’s euro-zone HICP data, released this morning, show that the early timing of Easter boosted services inflation by 0.1ppts. This effect was smaller than in previous years. Nevertheless, excluding the tourism-related sectors …
As things stand, higher oil prices will boost inflation in advanced economies by only a few tenths of a percentage point in the months ahead and we still expect this boost to fade as the year goes on. There are upside risks relating to tensions in the …
16th April 2024
The ECB looks set to cut rates in June, reducing the deposit rate from 4% to 3.75%, and we think it will follow that up with rate reductions at every remaining meeting this year . The pace of cuts might slow next year as policymakers feel their way …
The resilience of Swiss GDP over the past two years has been largely due to the merchanting sector, which buys and sells goods without them ever entering Switzerland. Excluding that sector, the economy was smaller at the end of 2023 than it was two years …
This page has been updated with additional analysis since first publication. Rise in output doesn’t improve poor outlook for industry Euro-zone industrial production rose in January, but the level of output is still weak and the outlook is poor. The 0.8% …
15th April 2024
The main takeaway from Thursday’s ECB meeting is that a rate cut in June is highly likely. Big upward surprises to inflation and wage growth data, or increases in the ECB’s updated inflation projections, would probably be necessary for officials to hold …
12th April 2024
The ECB’s decision to update its guidance suggests that an interest rate cut at the next meeting in June is very likely. Christine Lagarde would understandably not commit to a path of rate cuts, but we expect the Bank to reduce the deposit rate from 4% …
11th April 2024
Updated guidance suggests that June cut is likely The ECB’s decision to update its guidance suggests that an interest rate cut at the next meeting in June is very likely. In the press conference, Christine Lagarde won’t give a clear signal about the path …
After a period of relative calm, Italy’s fragile public finances are likely to come under the spotlight again before long. Budget deficits will be much higher than the latest government projections imply and Italy will probably face official EU procedures …
10th April 2024
The Q1 ECB Bank Lending Survey suggests that the drag on lending growth from tight monetary policy continued to ease. But the data remain consistent with broadly stagnant consumption and declines in investment. For the first time since late 2021, banks …
9th April 2024
The latest data are consistent with our view that the euro-zone will remain close to recession in the near term. With the labour market softening and inflation continuing to fall, the ECB is very likely to start cutting rates in June. Elsewhere, the SNB …
8th April 2024
Some signs of life from German industry, but outlook still poor The second consecutive large monthly rise in German industrial production in February confirms the sector has started the year on a better note. But we still expect it to struggle over the …
While we learnt this week that inflation in the euro-zone fell a bit more than expected in March, to 2.4%, some commentators pointed out that the monthly increase was quite high, at 0.8%, and was even higher than in February (0.6%). However, most of the …
5th April 2024
ECB will signal that policymakers expect to cut interest rates in June. A 25bp cut in June is most likely, but a 50bp move is plausible. Policymakers will keep their options open beyond that. Next week, we expect the ECB to signal clearly that as long …
4th April 2024
Surprise fall in Swiss inflation raises odds of further SNB rate cuts The further fall in Swiss inflation in March reinforces our view that the SNB will cut rates by a further 50bp this year. We have pencilled in the next rate cut for September, but there …
ECB officials have stressed that evidence of easing wage growth will be key in determining the timing of the first rate cut. Accordingly, this Update assesses which of the euro-zone’s numerous wage measures investors should keep their eyes on. The main …
3rd April 2024
This page has been updated with additional analysis since first publication. Falling inflation points to June rate cut The fall in both headline and core inflation in March suggests that the ECB is very likely to begin cutting interest rates in June. The …
The cost to the euro-zone of the universal tariff which Donald Trump has proposed, along with other likely spillovers from his trade policies, may result in a hit to the euro-zone economy of up to half a percent of GDP. The damage would be bigger if this …
2nd April 2024
National data point to fall in euro-zone inflation The fall in CPI inflation in the major German states in March all but confirms that both German and euro-zone HICP inflation will come in lower than expected in March. This will please ECB policymakers, …
Confirmation that France’s budget deficit was much higher last year (5.5%) than assumed in the government’s 2024 budget (4.9%) adds to concerns about Europe’s public finances. Indeed, Germany, France and Italy are all likely to be tightening fiscal policy …
28th March 2024
February’s money and credit data suggest that the effect of tighter monetary policy has eased slightly. But the data are still very weak and we think that rate cuts later in the year will lead to only a gradual rebound. The narrow (M1) money supply …
We think investors are underestimating the extent of rates cuts that the Riksbank will make this year. Policymakers are, rightly in our view, increasingly confident that inflation will soon return sustainably to the 2% target. Accordingly, we think they …
27th March 2024
This page has been updated with additional analysis since first publication. EC Survey points to stagnant economy and still-high price pressures The EC business and consumer survey for March reinforces the message that the economy is close to recession …
Riksbank Policy Announcement (March 2024) Riksbank confirms rate cuts imminent The Rikbsank’s decision to leave interest rates unchanged at 4.0% today was no surprise and the press release confirms that policymakers expect to cut rates soon. We are …
Data released today showed that Spanish inflation picked up from 2.9% in February to 3.2% in March. We think it is likely to increase further over the coming months due to base effects in energy inflation, higher VAT rates on energy and foods, and …
Data released this week broadly support our view that the euro-zone economy will have stagnated in Q1. The Composite PMI rose a touch in March but remained consistent with GDP flatlining. And the ZEW painted a similar picture. Admittedly, we also learned …
22nd March 2024
Germany Ifo Survey (March 2024) Although the Ifo Business Climate Index rose quite sharply in March, much of the improvement was in the volatile expectations component and it remained at an exceptionally low level. We still think the economy is likely to …
The SNB under Chairman Thomas Jordan has never shied away from making big calls, so it was fitting that it surprised markets with a 25bp rate cut today, to 1.5%, only three weeks after Mr Jordan announced he would leave his post in September. We expect …
21st March 2024
SNB kicks off rate-cutting cycle The SNB became the first G10 central bank to cut rates this policy cycle, reducing its policy rate by 25bp to 1.5% today. This was in line with our non-consensus forecast, and with the Bank sounding more dovish and …
This page has been updated with additional analysis since first publication. Stagnation continues, price pressures still high The flash PMIs for March suggest that the euro-zone economy is still flatlining, in line with our forecast. Meanwhile, the price …
We think the Riksbank will leave its policy rate unchanged at 4.0% next week but cut it by 25bp at the following meeting, in May. Beyond that, our forecast is for rates to come down much faster than the Riksbank’s own forecasts imply but broadly in line …
20th March 2024
The recent weakness of Germany’s economy is partly due to temporary factors which should ease this year. However, demographic and structural headwinds, partly driven by global fragmentation, mean the economy is likely to grow by little more than half a …
19th March 2024
Overview – The euro-zone will remain close to recession until the second half of this year and the subsequent recovery is likely to be weak. Household real incomes will pick up only slowly and consumers will be cautious amid a softening labour market. …
15th March 2024
ECB postpones some big decisions After 15 months of waiting, this week the ECB finally published the outcome of its operational framework review. We set out the key points here . In the near term, the status quo will largely be maintained, with the …
Inflation in Switzerland has surprised most other forecasters, including the SNB, this year by falling to just 1.2% in February, which was the ninth month in a row that it has been below 2%. We think this will encourage the SNB to reduce the policy rate …
14th March 2024
