- 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
- 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
- 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
- Valuations point to subpar returns for euro area large-cap equities in the post-pandemic expansion.
- Equities in Spain and Italy are priced for average returns of around 10% in the next five years…
- …The corresponding numbers for German and French equities are just 5% and 2½%, respectively.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- EZ unemployment fell further in November, due to an improvement in all major economies.
- Unemployment in the euro area will fall below 7% soon, even with Omicron now a near-term threat.
- Our labour market forecasts imply accelerating wage growth in 2022; the ECB will take note.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Joblessness is now below its pre-virus level; it will fall further in 2022.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: ESI will decline again in January, decent retail sales won’t have prevented a slowdown in consumption growth in Q4.
Melanie Debono (Senior Eurozone Economist)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
- 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
- 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
- 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
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
All signs point to stronger EZ wage growth next year, but it won't be easy to tell in real time.
Negotiated wage growth is still slowing, but the ECB’s preferred compensation measure is firming.
The trend in unemployment points to negotiated wage growth rising towards 3% next year.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
