- GDP is likely to rebound from Q1 next year, albeit slowly; consensus expects a quicker recovery.
- Inflation will fall more sharply than the consensus or ECB expects in H1, if we are correct on January…
- ...If so, the ECB will cut rates five times next year, starting in March, earlier than consensus expects.
Melanie Debono (Senior Eurozone Economist)Eurozone
- German consumer confidence is on the rise but risks to our consumption call remain to the downside.
- The EZ current account surplus climbed in October; the trend in the euro suggests it will decline soon.
- EZ construction started Q4 on a rough note, and all signs point to the struggle stretching into 2024.
Melanie Debono (Senior Eurozone Economist)Eurozone
- Inflation fell sharply in November; it will rebound in December, but what will happen in January?
- Our inflation forecasts remain at odds with the ECB’s; we still see a March rate cut.
- We’re betting that inflation falling below target will prompt the ECB to focus less on wage growth.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Net exports are poised to lift GDP growth in Q4, but by how much? We look for a 0.1pp rise.
- Export growth will rebound next year, but we think imports will recover relatively more.
- We believe rising goods imports will weigh on net exports and GDP growth in 2024.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The ECB lowered its inflation forecast in December; they will come down further in March, by a lot.
- Ms. Lagarde pushed back against our forecast for a March cut, but we think she’ll come around.
- The SNB stands pat, but sends a clear signal that it is now done raising rates; will it cut in March?
Claus Vistesen (Chief Eurozone Economist)Eurozone
- German politicians agreed to cut spending to stick to the constitutional debt brake...
- ...But it looks like a stop-gap solution to us, and fractures within the coalition will likely widen from here.
- EU fiscal rules return next year; in what form remains to be seen, but they will be laxer than before.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- German manufacturing faces a host of challenges, but the country isn’t de-industrialising, yet.
- Politics are at odds with economic objectives in Germany; the latter will drive the former, eventually.
- Employment and investment in machinery are the key manufacturing variables to watch in 2024.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The BTP-Bund spread is currently around 175bp, but we think it will fall to 100bp by end-2024...
- ..In line with the current spread between Spanish government-bond yields and Bund yields...
- ...Faster QT than we anticipate risks preventing the spread from falling to 100bp.
Melanie Debono (Senior Eurozone Economist)Eurozone
- EZ GDP growth was stung by falling inventories in Q3, offsetting a rise in public and private spending.
- The slowdown in investment is intensifying, but the outlook for household consumption is brightening.
- We now think EZ GDP will rise by 0.5% this year, and next year too; no upward inflation pressures here.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Italian GDP increased in Q3 rather than flat-lined, as the advance release had suggested...
- ...It is still more likely to fall than rise in Q4, and we are lowering our forecasts for H1 2024.
- BTPs are rallying, and we look for further gains; we see yields falling to just over 3% by mid 2024.
Melanie Debono (Senior Eurozone Economist)Eurozone
- An ECB pivot is underway; it will be confirmed at next week’s policy meeting, and by the new forecasts.
- The January HICP report and wage data remain risks to our call for a first rate cut in March.
- Early data from France and Spain suggest euro area manufacturing slowed further at the start of Q4.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Swiss inflation fell in November and has now been in line with the SNB’s target for six months...
- ...It will likely slide further in H1 next year, after a probable small base-effects driven rise in December.
- Coupled with weak growth, the stars should align for the SNB to start cutting its key rate by March.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- EZ inflation fell sharply in November, widening the gap between the reality and the ECB’s forecasts.
- January HICP is key for the 2024 inflation outlook; we look for a return to normal in m/m pricing.
- The ECB’s hawkish facade will soon crack; look out for a shift in messaging at the December meeting.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Inflation in Germany and Spain undershot consensus in November; will EZ HICP do the same?
- German inflation will snap back in December due to base effects in energy; the core is falling rapidly.
- Core inflation in Spain declined sharply in November, and the downturn has further to run.
Claus Vistesen (Chief Eurozone Economist)Eurozone
THE EZ ECONOMY IS SLIPPING INTO RECESSION...
- ...WHEN WILL THE ECB’S MESSAGE SHIFT?
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Money supply is not falling as fast as it was earlier in the year, but it is still declining...
- ...Lending growth, meanwhile, is fading, which bodes ill for our call for a rebound in GDP in H1 2024.
- The package holiday CPI can be volatile in November; risks are tilted to the downside this week.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Interest-rate and core-inflation differentials suggest the EUR is currently undervalued against the USD...
- ...Political uncertainty measures suggest it is right where it should be, at 1.10...
- On balance, we think EURUSD will trade between 1.10 and 1.15 for most of 2024.
Melanie Debono (Senior 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
