- 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
In one line: All set for a big drop in Q1, but the core will rebound strongly in Q2 and Q3.
Claus Vistesen (Chief Eurozone Economist)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
- We still think net trade supported GDP growth in Q4, despite the nominal goods trade deficit.
- Leading indicators suggest net exports won't pro- vide much of a boost to GDP growth in 2022.
- Full-year German GDP data for 2021 suggest growth was slower than previously thought in Q4.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- 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
- Retail sales data had a decent November, but online sales can't offset falling services spending.
- Germany is on track to meet our expectations for Q4 growth, but we're reducing our forecasts in France.
- EZ inflation has peaked; a strong rebound in the core will be a headache for the ECB in Q2 and Q3.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
In one line: This is the peak, but the fall will be slow and uneven.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- German factory orders are running hotter than manufacturing production...
- ...And the jump in manufacturing turnover points to a consensus-beating production report today.
- Headline inflation in Germany was broadly stable in December, but the core rate rose further.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- Advance November retail sales data point to relative strength in EZ consumption midway through Q4.
- Germany's labour market recovery continued in Q4, but surveys warn of a setback in Q1.
- Headline inflation in France remained high in December, but energy inflation is now falling.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Energy inflation is now likely falling, but the core remains firm.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Omicron is less of a burden on hospitals than Delta, but surging cases will still lead to restrictions in Q1.
- Warm weather and energy imports are driving a fall in natural gas prices; good news for consumers.
- The slowdown in real M1 growth points to a further fall in the EZ composite PMI in Q1, to about 52.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- The upward revision to Q3 GDP in Spain still leaves it further below the Q4 2019 level than elsewhere...
- ...The recovery has now slowed sharply; we look for just 1.0% growth in Q4; risks are to the downside.
- Data over the holidays are likely to show soft retail sales and yet more softening in business surveys.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- Gas prices have further to rise in the short term boosting energy inflation into Q1.
- But easing demand and base effects will then bring gas inflation hurtling down.
- Political tensions with Russia, and Germany's plans to wind down nuclear energy, present upside risks.
Claus Vistesen and Melanie Debono (Eurozone Team)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
- Supply bottlenecks are now easing, but likely will remain a challenge at the start of next year.
- Rising energy costs and new virus restrictions are the key risks to manufacturing in the near term.
- The virus might also drive more long-lasting distortions between supply and demand.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- We are raising our headline inflation forecasts for next year, but we're still well behind the ECB.
- Core inflation will hover around 2% for much of next year, causing a headache for the central bank.
- More poor survey data reassert our view that Q4 and Q1 won’t be pretty for the EZ’s largest economy.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
In one line: One more rise in December, and then the fever will break, for a short while.
Claus Vistesen (Chief Eurozone Economist)Eurozone
The ECB will end PEPP in March, but is keeping the door open for a resumption if the virus worsens.
ECB asset purchases will be around €500B next year on current plans, half the pace in 2021.
The SNB is standing pat, as expected, and we're lowering our outlook for EZ growth in Q1.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
Ms. Lagarde will stick to the signal that PEPP is likely to end in March, but Omicron is a big risk to this call.
The ECB's inflation forecasts will increase today; how close to 2% will they be for 2023 and 2024?
No rate hikes in 2022, but speculation about lift-off will intensify in the next six-to-12 months.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
Higher inflation recently has allowed the SNB to tolerate a much stronger franc than in the past.
We expect the Bank to keep all policy settings unchanged at its meeting on Thursday.
But falling inflation and a stronger franc heading into 2022 will force it to ramp up CHF sales soon.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
