Survey data point to a relatively robust French economy, but we still see a slowdown in H2.
We expect 3.0 full-year growth in France in 2022, down 0.7pp from our previous forecast.
Consumption in France will suffer from higher inflation, but we’re betting on solid growth in capex.
Claus Vistesen (Chief Eurozone Economist)Eurozone
The stars are aligned for further EURUSD weakness in the second quarter; 1.05 is in sight.
A European embargo on Russian gas likely would push EURUSD to parity; this risk is rising.
German GDP growth was picking up strongly before Russia's invasion of Ukraine.
Claus Vistesen (Chief Eurozone Economist)Eurozone
The PMIs point to solid economic activity at the end of Q1, but look out for weakness in Q2.
We see full-year growth in France at just under 3.5% in 2022, matching the consensus.
Consumers' spending is a wildcard; a fall in the savings rate is needed to maintain growth.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- 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
- We are revising down our euro area GDP forecast for this year, by 0.6pp to 3.2%.
- In a mild scenario, the war between Ukraine and Russia shaves 0.3pp off our 2022 forecast...
- ...But in a worst-case scenario, where the war lasts past this year, GDP growth would be 1.5pp lower.
Melanie Debono (Senior Eurozone Economist)Eurozone
- Slowing real M1 growth points to downside risks for EZ GDP growth in the second half of the year.
- The ECB will be worried about the impact on the economy from Russia’s invasion of Ukraine...
- ...But clear upside risks to inflation mean that its hands are tied, unless sentiment collapses.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- A sustained acceleration in imports from China is driving the deterioration in the EZ trade surplus.
- Germany's trade deficit with China blew out in 2021; will 2022 bring stabilisation?
- Watch out for two important statistical distortions in the quarterly EZ trade data.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- German industrial production rebounded in Q4, but not enough to reverse a terrible third quarter.
- We look for a further increase in Q1, but the gap between output and new orders will remain wide.
- Surveys point to a quick rebound in construction, but supply-side constraints remain a big challenge.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- 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
- German GDP tumbled in Q4, but it rose in France and Spain; we think EZ GDP rose by 0.4% q/q.
- The ESI points to lingering supply-side constraints on manufacturing at the start of 2022.
- This week's CPI data will show that EZ core inflation fell sharply in January; it will rebound quickly.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- The EZ's trade surplus in goods is a lot perkier if we choose to believe the ECB's current account data.
- Net services exports likely jumped in Q4, but this means intellectual property investment plunged.
- EZ portfolio outflows are now slowing, belatedly; inflows signal trouble for equities in 2022.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- EZ auto sales fell in 2021, again, though we suspect they rebounded in Q4, after a terrible Q3.
- Investment by EZ auto-makers has fallen in line with weakening production, due to supply-side woes…
- …But employment has rebounded strongly, pointing to underlying confidence in the future.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- 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
- The ECB’s data continue to paint a less dramatic picture of trade in goods than Eurostat's numbers.
- Net services exports likely will jump in Q4, but this will be offset in part by a fall in IP capex.
- The euro glut has expanded during the pandemic, due mainly to a rise in EZ foreign equity holdings.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
In one line: Consumers’ spending rocketed in Q3; now comes the slowdown.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The green energy transition can be modelled as a sustained inflationary supply shock to the economy.
- In the extreme case, a rise in oil and gas prices could lift EZ inflation by 0.5pp between now and 2026.
- The price of CO2 emissions is rising; it could lift EZ inflation significantly over the next few years.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- Italy has a reputation for a slow judicial system, weak tax collection and low labour productivity...
- ...But Draghi has pushed through reforms aimed at reversing these drags on the economy.
- We are hopeful, but sceptical, about how much reform will happen before the next election, in 2023.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- The Eurozone economy recovered further in Q3, and revisions could close the gap with Q4-2019.
- France and Italy stood out to the upside in Q3, with Germany lacklustre, and Spain implausibly weak.
- We're lifting our inflation forecasts, again, but we still think markets are wrong on ECB tightening in 2022.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- French GDP growth rebounded strongly in Q3, from a lacklustre Q2; we look for a 2.4% rise in output.
- Italian GDP is also likely to have posted a solid quarter, but base effects kept a lid on the headline.
- Spain's economy likely took pole position in Q3; services exports rocketed as tourism reopened
Claus Vistesen (Chief Eurozone Economist)Eurozone
- EZ construction output slipped in August, all but ensuring a decline through Q3 as a whole.
- Shortages in labour and raw materials are holding back construction, but output should rebound in Q4.
- A traffic light coalition is now a solid base-case in Germany, but a leap in fiscal stimulus isn't.
Claus Vistesen (Chief Eurozone Economist)Eurozone
