Pantheon Publications
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Daily Monitor Melanie Debono (Senior Eurozone Economist)
- The SNB held its policy rate at 0% at its final meeting of the year yesterday, as widely expected.
- Next year will be boring for Swiss central bank watchers; we expect no change in rates until 2027.
- The SNB thinks policy is expansionary; it will likely hike next, in 2027, as inflation nears the 1% mark.
- The French and Spanish economies are losing pace in early Q4, according to the hard data.
- Italian data for October were weak, but carry-overs suggest a better Q4 than Q3 anyway.
- The spike in German wage growth was likely due to one-offs; it will pull up the EZ total.
- German trade figures for October add to the run of positive figures for early Q4.
- Our nowcast model suggests we are right to look for an increase in GDP in Q4 after stagnation in Q3.
- Risks remain, however, as leading indicators point to renewed weakness in goods trade in November.
- German industry enjoyed a strong start to Q4 and points to a solid October for EZ industry.
- French and German construction data suggest EZ construction also had a decent October.
- The first investor sentiment gauge for December, while subdued, still implies upside risk to EZ GDP.
- The EZ composite PMI was revised up in November, pointing to stronger growth in Q4...
- ...But early hard data for October are weak, and the PMI points to softness in construction.
- Switzerland’s PMIs suggest recession risk remains despite the US-Swiss trade deal.
- Swiss inflation is now at the bottom end of the SNB’s 0-to-2% inflation target range.
- It will likely fall further in the near term, to a trough of -0.2% or so, before rising gradually.
- The SNB will ignore sub-zero inflation; it is focused on inflation in the medium term. SNB easing is over.
- Italian GDP was held back in Q3 by another drop in inventories; these should rebound next year…
- ...Growth will pick up in 2026 as the outlook for net trade is also now brightening.
- In Switzerland, GDP will bounce back in Q4 from the drop in Q3, but growth will slow next year.
- The acceleration in money and credit is easing, but both remain a bright spot for the EZ economy.
- The last set of business surveys for the month round up a month of largely hawkish data.
- It would take a downside surprise in inflation to push the ECB to cut in December; we doubt it will happen.
- The BTP-Bund spread has continued to fall in recent months, in line with our call.
- We look for it to slide to 20bp by mid-2026, its average in the run-up to the Global Financial Crisis.
- A higher Bund yield will still mean above-3% Italian yields though, keeping Rome’s debt costs high.
- Swiss GDP fell in Q3, by 0.5% on the quarter, more than reversing the 0.2% increase in Q2.
- We no longer forecast a recession in H2, as US trade tariffs are now being lowered to 15% from 39%.
- Risks are to the downside, but we still doubt that the SNB will ease policy in December.
- EZ industrial production had a neutral impact on EZ GDP in Q3, if you believe Eurostat’s figures.
- Construction, meanwhile, is set to have been a drag, while services pulled GDP up by 0.2%.
- Surveys point to a jump in services output ahead, but meagre moves in construction and industry.
- ECB doves hoping for help from the euro to pull a December cut over the line will be disappointed…
- ...We expect a further softening in the euro to 1.15 by year-end, before a slight pick-up next year, to 1.17.
- Spanish and Italian surveys for early Q4 are too upbeat, in our view.
- Swiss inflation eased to within touching distance of 0%, the bottom of the SNB’s inflation target range.
- We look for further declines, in contrast to the SNB’s forecast for inflation to rise.
- Still, the SNB will hold off from further easing this year and probably also next year.
- The ECB BLS showed banks tightened lending standards in Q3, boding ill for capex and spending…
- ...But these downbeat messages can safely be ignored, given other survey data.
- The first business survey for Italy for October suggests growth there is picking up, as in Germany.
- Lending to the private sector is slowing at the margin but underlying momentum remains solid…
- ...Our measure of the credit impulse points to EZ GDP growth of around 0.5% q/q in Q4.
- Germany’s IFO survey adds to the message from the PMI that a rebound there will lead the way in Q4.
- The EZ general government budget deficit held steady in Q2, as revenue and expenditure both rose.
- It is likely growing now, as Germany has started to spend more earnestly, and will widen again next year.
- The EZ deficit will likely rise to 3.5% of GDP this year, 3.8% in 2026 and 4.0% in 2027, from 3.1% in 2024.
- GDP in Germany and Italy likely improved relative to Q2, but growth in France and Spain probably fell.
- EZ GDP growth is likely to have held steady, at just 0.1% quarter-to-quarter.
- Q4 is set to be a touch better, as the drag from net trade fades, thanks to falling imports.
- Trade figures indicate a significant dampening effect on EZ goods trade from US trade tariff hikes.
- The data show few signs of trade diversion and/or re-routing from China, but some price cuts.
- The EZ trade surplus will widen further to year-end, and the drag from goods trade on GDP will fade.
- Italy’s deficit will shrink this year but still exceed the EU’s 3%-of-GDP limit and the government’s target.
- Its 2026 budget plans are mildly expansionary, including a cut to taxes for middle-income earners…
- ...while little consensus on offsetting revenue-raising measures exists among the coalition.
- Swiss inflation held at 0.2% for the third straight month; it will remain stuck near zero until Q2 2026.
- The SNB has said it will ignore negative inflation prints in the near term…
- ...We expect the next rate move to be up, in 2027, despite downside risks to our inflation forecasts.
