- A cold winter will turn rising gas prices into a macroeconomic issue; Q4 risks are tilted to the downside.
- Car sales in the Eurozone aren't going anywhere, mirroring the slump in production.
- The EV transition is underway in Europe, but lack of timely infrastructure investment is a challenge.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Growth in EZ hourly labour costs plunged in Q2, but other, more timely, data point to robust wage gains.
- Ms. Lagarde's comments last week suggest that we should watch negotiated wages closely in H2.
- We see few signs of accelerating wage growth in 2021 collective bargaining agreements, yet.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The trend in oil prices suggests energy inflation will soon fall and even turn negative next year in the EZ...
- ...But high, and rising, gas prices will offset this impact, keeping energy inflation sticky.
- We doubt this will lead the ECB to taper more quickly, particularly if some restrictions return in winter.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- EZ fiscal policy will tighten next year, but it will remain much more supportive than before Covid.
- EU grants will fund public expenditure to the tune of about 0.5% of GDP in 2022, mostly in the South.
- Public investment as a share of GDP was rising before the virus; we think this trend will continue.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Industry in the EZ seemingly got off to an OK start in Q3, but we doubt this is a turn in the trend.
- Italian output continues to shine, thanks to out-sized gains in less capital intensive industry...
- ...A correction may be on the way but strong business surveys mean that we remain optimistic.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- German industrial output rebounded at the start of Q3, but the trend likely is still flat.
- Consumers' spending propelled the EZ economy in Q2; a full recovery in GDP is possible in Q3.
- We are lifting our full-year forecasts for 2021, but this is mostly book-keeping; growth is now slowing.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The July jump in German factory orders was driven entirely by major transport equipment.
- Industrial production in Germany rebounded in July, but we still think the trend is sideways.
- Spain should grow faster than elsewhere in Q3 and perhaps even Q4, but will continue to lag its peers
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Don't fret the July plunge in EZ retail sales; Q3 as a whole will be OK, and services will do even better.
- The risk of new virus restrictions remains low, de- spite the uptick in new cases since the end of Q2.
- Consumers' spending in services will deliver strong growth in Q3 in the major EZ economies.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The Swiss economy had regained more of its Covid losses than the euro area as of Q2.
- We still expect it to complete its recovery in Q3, ahead of the EZ, and grow by 3.5% overall this year.
- The outperformance and incoming ECB PEPP taper will push up the CHF; a headache for the SNB.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Core inflation in the euro area rocketed in August, but we doubt that markets will notice.
- PEPP tapering is coming, but the overall tenor of the ECB's communication remains as dovish as ever.
- The EZ survey data are now softening, but that won't matter for GDP in Q3; for Q4, however, it might.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- European birth rates have rebounded since the end of the 1990s, but remain below replacement levels.
- The rebound in German marriage and birth rates stands out; not much sign of a rebound elsewhere.
- Women are still postponing having their first child; that will continue to hold back total fertility rates.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- There are many statistical hurdles to overcome to include housing costs into the EZ HICP...
- ...A rough & ready estimate suggests inflation would have been 0.3pp higher, on average, since 2011.
- Even if house price growth continues to accelerate, we doubt it will lead to tighter monetary policy.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Banks went into the crisis in a relatively healthy state; much better than in 2007.
- The jump in emergency loans during Covid is un- likely to be destabilizing, even if some of it turns sour.
- Stress tests show that banks can handle a jump in NPLs, and foreign risks are generally limited.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The scene is set for another face-off between Mr. Macron and Mrs. Le Pen next year.
- Polls suggest that Mr. Macron will win a second term, but the margin is closer than in 2017.
- Rising political risks could dent French equities, and widen 10-year spreads to German bunds.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The second Q2 GDP estimate for the EZ will confirm the advance report while we are away.
- Detailed GDP data in Germany will show that consumers' spending rocketed in Q2.
- We look for soft surveys for August, but we still think Q3 as a whole will be great for the EZ economy.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- VAT base effects in core goods were the main driver of the July leap in German inflation.
- The yawning gap between national and HICP services inflation will close soon; the latter will rebound.
- We now see clear evidence of a reopening bump in hospitality prices; will it be sustained?
Claus Vistesen (Chief Eurozone Economist)Eurozone
The spread of the Delta variant seems to be slowing, at least in the Big Four EZ economies...
...But the threat of new variants looms, and booster shots elsewhere aren't providing promising signals.
We still think GDP growth in Q3 will be faster than Q2, but uncertainty is now rising for Q4.
Claus Vistesen (Chief Eurozone Economist)Eurozone
EZ bond yields have been dragged lower as investors have abandoned the reflation trade.
Idiosyncratic factors will weigh on bund yields in H2, but we still see room for a rise to -0.3-to-0.4% in Q4.
Energy imports, and goods demand from Eastern Europe, are weighing on Germany's trade surplus.
Claus Vistesen (Chief Eurozone Economist)Eurozone
German factory orders surged in June, more than reversing May's plunge ...
... But turnover data point to a weak end to Q2 for industry; we look for a 0.5% monthly fall in June.
French industry continued to tread water; even though car output rose for the first time this year.
Claus Vistesen (Chief Eurozone Economist)Eurozone
The PMIs confirm that the Q2 upturn in services continued at the start of the third quarter.
Data in France and Spain suggest that hospitality came roaring back in Q2; more to come in Q3.
EZ retail sales jumped by 3.4% in Q2; growth will slow in Q3, but should remain robust.
Claus Vistesen (Chief Eurozone Economist)Eurozone
