ECB HAS FURTHER ROOM TO EASE POLICY...
- ...BUT WE ARE CLOSER TO NEUTRAL THAN MARKETS BELIEVE
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Rising political uncertainty likely contributed to tightening credit standards in Q4…
- …But we need more data to tell whether this is the start of a sustained shift; we doubt it.
- French consumer confidence rebounded in January but still signals upside risk to unemployment.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- High gas prices and low inventories in the EU risk higher Eurozone inflation in Q2 and Q3.
- Russian gas imports will likely dwindle further; the US, Norway and Qatar can cover some of the gap…
- ...But at what price? And what will happen if Chinese or domestic US demand ramps up?
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Up marginally, supporting our view of a modest rebound in Q1.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Up, supporting our call for faster GDP growth in early 2025, but not enough to deter an ECB rate cut next week.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Great, but beware the likely seasonal boost in services.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Downturn stalled, but no upturn in sight.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: New year relief, but still subdued.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The ECB will cut its deposit rate by 25bp this week; discussions on the level of neutral will intensify.
- Upside risks to energy, downside risks to the core in the national CPI and HICP data this week.
- EZ PMIs firmed in January, supporting our call for stronger EZ GDP growth in the first quarter.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Poor, but details better than the headline.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Our baseline assumes a mild US tariff rate increase and therefore limited impact on EZ exports and GDP.
- If the US raises tariffs on all goods apart from EU goods, GDP could rise by twice as much this year.
- A big universal tariff increase instead could see a Eurozone recession and GDP falling by 1% or so.
Melanie Debono (Senior Eurozone Economist)Eurozone
- Polls are little changed in Germany; a grand coalition between CDU/CSU and SPD still looks the best bet.
- The debt brake is ripe for change, but what is the best way to loosen Germany’s fiscal rules?
- AFD’s support is rising; is a two-party coalition with the CDU/CSU an outsized risk?
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Falling back but still consistent with a supra-50 EZ composite PMI.
Melanie Debono (Senior Eurozone Economist)Eurozone
- A US move to use energy as a bargaining chip in trade negotiations would send EZ prices higher.
- The Greenland question could inadvertently spark a trade war between the EU and the US.
- Mr. Trump’s pledge to end the war in Ukraine quickly is a key test case for America’s NATO commitment.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Construction supported growth in Q4.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Upside risks building in energy, but the Q1 core looks benign on our forecasts.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Weak capex and declining private consumption raise alarms for Mexico’s near-term economic outlook.
- Potential tariff threats and trade negotiations could complicate economic ties between US and Mexico.
- Ongoing reforms and budget deficits will hinder Mexico’s economic flexibility and growth prospects.
Melanie Debono (Senior Eurozone Economist)Eurozone
- Upside risks are building for EZ energy inflation in January due to rising oil prices and one-off effects.
- Our Q1 core inflation forecasts are lower than the ECB’s, but we’re in line on the headline.
- We still see three more 25bp rate cuts this year, but risks are now tilted towards two.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: EZ goods trade was still a drag on growth in Q4.
Melanie Debono (Senior Eurozone Economist)Eurozone
