- ECB hawks will pounce on signs from the PMI of continued upward price pressures in services...
- ...But the PMIs continue to suggest the EZ economy remains in a rut & manufacturing costs are sliding.
- January’s inflation read will be more decisive for the timing of the ECB’s first rate cut; March is our call.
Melanie Debono (Senior Eurozone Economist)Eurozone
- Lending standards were tightened again in Q4, albeit less than in Q3; banks blamed risk perception.
- Demand for loans again fell across the board, partly reflecting the continued rise in interest rates.
- ECB doves can use the BLS to argue that financial conditions can ease, but will they?
Melanie Debono (Senior Eurozone Economist)Eurozone
- This week the ECB will continue to push back against expectations of a rate cut in the first half of 2024...
- ...But the central bank is now happy to underwrite the consensus position of a rate cut by summer.
- We still see the ECB cutting by March, as January and February HICP surprise to the downside.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- A raft of collective wage agreements will be renewed this year, and the ECB is watching closely.
- If the ECB waits until it has a full overview, rate cuts will be delayed, even beyond June.
- We still see a rate cut in March as inflation comes down much faster than the central bank expects.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Pulled lower by a widening primary income deficit.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The slowdown in EZ construction intensified in Q4 and won’t improve any time soon.
- A sharply wider primary income deficit stung the EZ current account surplus in November.
- EZ portfolio outflows accelerated in Q4, but the market setback in January points to a pullback in Q1.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Old news; will January and February inflation be soft enough for a March cut?
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The ECB is not happy with market expectations for a spring rate cut but is fine with June.
- If our forecast for inflation to fall below 2% by February is right, the ECB will cut in March.
- Plunging PPI points to downside risks to services inflation, but the output price PMI is still high.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: In line with our view that the Q1 recovery in German GDP will be muted
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: All due to base effects; how far will inflation fall in January?
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The fall in EZ residential house prices was extended in Q3, and likely again in Q4.
- In 2024, house prices should recover somewhat as demand rebounds, but not until the end of the year.
- We look for house prices to fall by 3.5% this year after a likely near-2% decline in 2023.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Pulled lower by falling domestic demand; GDP likely fell in Q4.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Industry was still in recession in Q4; boost from net trade was likely offset by weakness elsewhere last quarter.
Melanie Debono (Senior Eurozone Economist)Eurozone
- German GDP fell by 0.1% in 2023, which—according to Destatis—includes a 0.3% decline in Q4.
- Manufacturing in the euro area remained in recession in Q4, but net trade in goods jumped.
- We think EZ GDP fell by 0.2% quarter-to-quarter in Q4, due to broad-based domestic weakness.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Data until November suggest French GDP plunged in Q4; we’re lowering our forecasts.
- The savings rate is a key swing factor for French consumption growth; what will it do in 2024?
- The inventory correction in France has likely run its course, but net investment is slowing.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: A rise in core goods consumption not enough to lift Q4 spending; inflation will fall sharply in Q1.
Claus Vistesen (Chief Eurozone Economist)Eurozone
