In one line: French GDP is headed for a decline in Q4.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- German GDP fell in Q3, and we look for a further decline in Q4, pushing the economy into recession.
- Real disposable income growth remains weak; we still think it will improve next year as inflation eases.
- The fiscal impasse will be resolved, eventually, but a near-term hit to growth is now likely.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The EZ PMI for November indicate that the slowdown in activity eased midway through Q4…
- ...But we still think the Eurozone economy is now in a technical recession.
- ECB accounts shows that policymakers are surprised over how quickly financial conditions are tightening.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Europe is sitting pretty on energy so far this winter; prices are low and gas inventories are full to the brim.
- The current trend in oil and gas prices indicates EZ inflation could hit 1.5% by the middle of 2024.
- Asia and North America have taken over from Russia as marginal energy suppliers to Europe.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Negotiated wage growth in the EZ accelerated slightly in Q3, likely boosted by Germany.
- Market expectations and ECB communication are now wildly at odds; something has to give soon.
- We still see scope for easing early next year, but this call depends on a shift in language in December.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Today’s negotiated wage figures likely will show that wage growth eased in Q3, but only marginally.
- Construction output edged up in September; survey data suggest this was reversed in October...
- ...We think the sector will be a drag on growth again in Q4; luckily it accounts for only 5% of EZ GDP.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: The path to a March rate cut remains clear, to us.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Solid, but the headline likely will roll over soon.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Inflation in the EZ is falling quickly, and the threat from a rebound in energy inflation is receding.
- Core inflation remains on track to undershoot the ECB’s September forecasts, especially in Q1.
- Sticky wages is a risk to our call for easing early next year, but the path to a March cut is still clear.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Higher real interest rates will likely keep precautionary savings high, raising the savings rate further...
- ...If it rises gradually beyond our baseline by end- 2025, say to 18%, spending would fall next year...
- ...But it would need to rise much further, and much quicker, for the EZ recession we expect to last longer.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Real rates in the EZ are now rising, even as the ECB stops hiking; we still see room for easing in Q1.
- The private sector’s interest rate costs will rise in 2024, even if the ECB holds or even eases slightly.
- Core inflation in France is now falling, EZ industry is still in recession, and EZ net trade likely rose in Q3.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Disinflation will continue, despite stickiness in services.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Falling EZ inflation and our call for policy rate cuts mean we do not expect faster ECB QT...
- ...The Bank has pushed ahead with conflicting policies before, however, so the risk remain.
- If we are wrong, the most likely rate of faster ECB balance-sheet shrinkage is tiny, just €30B per month.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Italian GDP will probably fall in Q4, even if revisions don’t show it declined in the third quarter.
- Budget negotiations are heating up; BTP yields will stay high next year despite a likely fall in spreads.
- Spain may end the year with a government after all, but this won’t change the economic outlook.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The central message from ECB policymakers is still that interest rates won’t be lowered any time soon...
- ...but we still see a path to a first rate cut in March, as core inflation undershoots the ECB’s forecasts.
- Sticky wage growth and rising unit labour costs are the main threats to our forecasts for cuts in H1 2024.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- German industry was in recession in early H2, and we suspect it will remain so at least to year-end.
- Spanish industry ended Q3 on a high but was still also in recession.
- Construction will continue to struggle; risks to our call for EZ GDP to rebound are to the downside.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The PMIs warn that the slowdown in the EZ economy is becoming more broad-based...
- ...But they’re probably too pessimistic, and investor sentiment points to better headlines ahead.
- German factory orders edged higher in September, but the details show that overall weakness persists.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Pointing to better times ahead for the economic surveys.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: The slowdown is becoming broad-based.
Claus Vistesen (Chief Eurozone Economist)Eurozone
