31 Mar 2022 Higher Energy Prices Mean Slower Growth in Italy

• Italy is the second-most reliant major EZ economy on Russian gas, after Germany.
• Cutting reliance on Russian gas is already hurting industry; we are revising down our GDP forecasts.
• We have revised up our EZ inflation estimate for March, after Spanish & German headlines surged.

Melanie Debono (Senior Eurozone Economist)Eurozone

EZ Datanote: SNB Rate Decision, Q1 2022

In one line: Maintaining the status quo and striking a downbeat tone. 

Melanie Debono (Senior Eurozone Economist)Eurozone

25 Feb 2022 What Does a War in Ukraine Mean for EZ Energy Prices, and the ECB?

• A new and more uncertain reality is emerging in Europe; defence spending will accelerate.
• The ECB’s initial response to a war in Ukraine will be to pause, but the inflation challenge isn’t going away.
• War in Ukraine risks another surge in oil and gas prices, boosting energy inflation.

Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone

24 Feb 2022 EZ Inflation Data will Continue to Hold the ECB's Feet to the Fire

• We still think EZ core inflation is on track to hit 3.0% in Q2, underpinning the hawkish shift at the ECB.
• We now think the central bank will lift its deposit rate by 20bp in December, after ending QE in October.
• Soft GfK consumer confidence data in Germany, but solid INSEE business sentiment numbers in France.

Claus Vistesen (Chief Eurozone Economist)Eurozone

22 Feb 2022 Surveys Suggest Activity is Holding Up Better than Expected

• PMI data for February surprised on the upside; services activity is rebounding faster than expected.
• We are raising our Q1 EZ GDP growth forecast, by 0.3pp, to 0.5% quarter-on-quarter.
• Pricing intentions surged again, piling pressure on the ECB to unwind stimulus measures.

Melanie Debono (Senior Eurozone Economist)Eurozone

21 Feb 2022 More Evidence that the ECB is About to Make a Hawkish Shift

• Comments from Mr. Lane and Ms. Schnabel add to evidence of a hawkish shift in ECB policy.
• French core inflation fell in January, but it will re- bound quickly, to 2.0%, where it will stay through Q3.
• EZ construction fell in Q4, again, and consumer sentiment remained soft midway through Q1.

Claus Vistesen (Chief Eurozone Economist)Eurozone

18 Feb 2022 A Higher TLTRO Rate won't be a Disaster for the EZ Economy

• The rate applied to TLTRO borrowings will rise from June, reducing revenues in the banking system.
• We doubt the ECB will extend the special interest rate period for TLTROs...
• ...But suspect it will raise the tiering multiple to help support bank lending as funding rates rise.

Melanie Debono (Senior Eurozone Economist)Eurozone

15 Feb 2022 Will Inflation Put a Squeeze on EZ Consumption and GDP Growth?

• The slowdown in real M1 growth warns of a composite PMI in the low 50s through Q2.
• Inflation will weigh on real wage growth in H1, but households have savings to smooth consumption.
• The ECB would think twice about tightening if Q2 growth disappoints, but no respite in the near term.

Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone

14 Feb 2022 The ECB Tries to Put the Genie Back in the Bottle; Will it Work?

• The ECB is pushing back against the dramatic shift in forecasters’ expectations for tighter policy.
• German core inflation fell only slightly in January; the core HICP rate will rise to 3.5% by April.
• The Swiss don’t have an inflation problem, unlike their neighbour, despite the rise in prices in January.

Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone

9 Feb 2022 The SNB will Stand Pat, even as the ECB Moves to Tighten

• The ECB and SNB policy settings have been joined at the hip in the past...
• ...But we don't think the SNB will follow the ECB in tightening policy this time around.
• We look for CHF to appreciate vs the euro over the coming months, ending the year back at CHF 1.03.

Melanie Debono (Senior Eurozone Economist)Eurozone

7 Feb 2022 Surveying the Damage; How Quickly will the ECB Go?

• The cat is out the bag; forecasters and markets now look for a significant shift in ECB policy this year...
• ...We concur, to a point; we think QE will end in October, before a 20bp deposit rate hike in January.
• German factory orders rebounded at the end of Q4, but industrial production in France stalled.

Claus Vistesen (Chief Eurozone Economist)Eurozone

4 Feb 2022 The ECB Sets the Stage for Accelerated Taper, and Rate Hikes

• The ECB is preparing markets for a hawkish policy shift in March; QE will end this year.
• We now look for three rate hikes in the first half of 2023; in January, March and June.
• The PMIs confirm that Omicron hit services hard in January, especially in southern Europe.

Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone

ECB Rate Decision, January

In one line: No change; Ms. Lagarde faces a tricky balancing act today. 

Claus Vistesen (Chief Eurozone Economist)Eurozone

3 Feb 2022 The ECB is in a Tight Spot, Sooner than We Anticipated

• EZ inflation blew past expectations in January, leaving the ECB in a tight spot today.
• Risks are tilted towards a quicker than expected withdrawal of QE; we look for a taper to zero in Q4.
• The ECB's bank lending survey points to strong demand for credit, and banks are willing to lend.

Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone

28 Jan 2022 Resilient Consumer Sentiment Not Enough to Limit Fall in Spending

• Consumer confidence data in January point to a decent quarter for consumption in Q1...
• ...But other surveys and near-real-time data suggest otherwise. The good news is that Q2 will be better.
• Reactivation of the counter-cyclical capital buffer signals the return of "normality" for Swiss banks.

Melanie Debono (Senior Eurozone Economist)Eurozone

26 Jan 2022 All Change in EZ Bond Markets Post Covid, or More of the Same?

• The ECB will buy most of what governments need to issue this year, but 2023 will be different.
• We look for bund yields to rise to 0.5% by mid-2023, with the 2s10s yield curve steepening to 90bp.
• Our baseline is for constant BTP spreads; this implies yields at 1.8% by the middle of next year.

Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone

21 Jan 2022 The ECB will Raise Rates in the First Half of 23; Conditions Apply

• Inflation in the EZ has peaked, but core inflation above 2% will be a challenge for the ECB in 2022.
• Watch services inflation closely after the decline in January; it could hit 3%-plus in Q3.
• We see three conditions for the ECB to lift its deposit rate by 30bp in H1 2023.

Claus Vistesen (Chief Eurozone Economist)Eurozone

18 Jan 2022 Record House Price Growth will Keep the ECB On Its Toes

• Growth in EZ house prices accelerated at a record pace in Q3; at this rate, it will hit 10% soon.
• With most tailwinds still around this year, we expect further house price growth increases.
• This will put a floor on any slowdown in spending growth, but will also raise alarm bells at the ECB.

Claus Vistesen (Chief Eurozone Economist)Eurozone

14 Jan 2022 Draghi's Departure Wouldn't Change Italy's Outlook, Much

• Decent hard data lead us to raise our Q4 forecast for Italy, as for Spain, but GDP growth has slowed.
• Italian GDP likely rose by 0.8% in Q4; Q1's outcome will be little more than zero, as virus restrictions bite.
• An early election in Italy would put upward pressure on BTP yields, but it would prove short-lived.

Melanie Debono (Senior Eurozone Economist)Eurozone

12 Jan 2022 Spain is On Track for 1.5% q/q Growth in Q4, a Positive Outlier

• Stronger-than-expected industry and retail data lead us to revise up our Q4 GDP forecast for Spain.
• We now think GDP grew by 1.5% q/q, much quicker than in the other major EZ economies.
• Solid Q4 growth increases the carry-over for 2022 growth forecasts, but Spain is still a laggard.

Claus Vistesen (Chief Eurozone Economist)Eurozone