- EZ inflation likely fell by 0.2pp in January, to 2.7%, with the core rate down 0.3pp, to 3.1%.
- The ECB remains on track to downgrade its 2024 inflation forecasts in March, by a lot.
- German retail sales plunged, again, in Q4; the fall in jobless claims in January is likely a blip.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- This week’s January inflation data will be key for the ECB’s decisions and communication in H1 2024.
- We look for a downside surprise in the EZ, but the January report is a wildcard; anything can happen.
- EZ GDP likely fell in Q4—confirming a recession— worse than the ECB predicted in December.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Money data, adjusted for savings, suggest a Q1 recovery in EZ GDP is still on the cards...
- ...Growth in bank lending, however, suggests the recovery will be tepid, at best.
- Consumer confidence figures imply the same, as German sentiment is hurt by higher taxes.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The ECB left all its policy settings unchanged yesterday, as everyone expected it to.
- President Lagarde stuck to the line that a spring rate cut is unlikely but didn’t explicitly push back on it...
- ...Data next week will, we think, give the Bank the confidence it needs to cut rates first in March.
Claus Vistesen (Chief Eurozone Economist)Eurozone
THE ECB IS DONE HIKING; WHEN WILL IT CUT?
- ...WE THINK EASING WILL BEGIN IN MARCH
Claus Vistesen (Chief 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: All due to base effects; how far will inflation fall in January?
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Pulled lower by falling domestic demand; GDP likely fell in Q4.
Claus Vistesen (Chief 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
In one line: Decent, but production likely fell over Q4 as a whole.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- New budget rules in the EU will put France, Italy and Spain on the spot, but will they be enforced?
- The Commission’s fiscal proposals leave plenty of room for exceptions and long adjustment paths.
- Retaining the 60% debt-to-GDP threshold exposes many countries to prolonged adjustment plans.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- German manufacturing remained subdued in Q4, but net trade in goods likely soared.
- Retail sales in the euro area fell midway through Q4, due principally to weakness in Germany.
- Investor sentiment continues to signal upside risk for the EZ composite PMI at the start of 2024.
Claus Vistesen (Chief Eurozone Economist)Eurozone
