21 July 2022 EZ Monitor Europe remains exposed to a quick end to Russian gas flows

Russian gas will soon flow to Europe again, but at a severely reduced rate; a full shutdown remains likely.

The IMF estimates that Europe will be short some 50bcm gas if Russian supplies are halted, at best.

Only demand compression, via higher prices and or rationing, solves this problem; it will sting.

Claus Vistesen (Chief Eurozone Economist)Eurozone

EZ Datanote: Final Inflation, Germany, June 2022

In one line: The core was depressed by fiscal measures; it will snap back in September. 

Claus Vistesen (Chief Eurozone Economist)Eurozone

11 July 2022 EURUSD is about to Hit Parity, and We See Little Reason to Buy

EURUSD is closing in on parity and it won’t stop falling there; don’t buy the dip yet.

We think French GDP rose by 0.4-to-0.5% q/q in Q2, better than the INSEE estimate...

...But we are less optimistic than the statistical office on H2; we see growth of just 0.1% in Q3 and Q4.

Claus Vistesen (Chief Eurozone Economist)Eurozone

27 May 2022 Italian Debt will Remain Above Pre- Pandemic Levels to 2024

Italy’s budget deficit will narrow further this year, but it will stay wider than policymakers expect.

The government has lowered its expectation for the impact of EU recovery funds; it’s still too high.

Germany’s push for the return of the SGP is falling on deaf ears; it won’t come back in the same form.

Melanie Debono (Senior Eurozone Economist)Eurozone

13 May 2022 The EZ Primary Budget will Stay in the Red, but the Debt Ratio will Fall

The euro area’s primary budget balance swung to a significant deficit during the pandemic.

We think the primary deficit will narrow through 2024, but the balance will remain in the red.

Net interest costs will rise, but we think the debt-to-GDP ratio will fall, due to robust nominal growth.

Melanie Debono (Senior Eurozone Economist)Eurozone

11 May 2022 If the EU Bans Russian Gas, Italy will Flirt with Recession in H2

Italy will probably avoid entering a technical recession in Q2, as services activity rebounds strongly...

...But we now expect an EU ban on gas imports from Russia, which will weigh on growth in H2.

Our forecasts for Spain are unchanged from March as recent developments offset each other.

Melanie Debono (Senior Eurozone Economist)Eurozone

26 Apr 2022 The EZ Budget Deficit will Fall in 2022, but by Less than in 2021

The fall in the EZ budget deficit slowed in Q4, as governments ramped up fiscal support again.

We look for a smaller fall in the budget deficit this year than last, despite strong automatic stabilisers.

France’s electorate voted to maintain the status quo, but low turnout means Macron cannot rest easy yet.

Melanie Debono (Senior Eurozone Economist)Eurozone

10 Mar 2022 The ECB Today Will Signal a Quicker Withdrawal of QE

• The ECB will highlight Ukraine as a downside risk to GDP growth today, pledging action if needed...
• ...But we still think the central bank will announce its intention to wind down the APP, by October.
• Could the ECB raise rates while still doing QE? Not based on current guidance, but this could change.

Claus Vistesen (Chief Eurozone Economist)Eurozone

9 Mar 2022 The War in Ukraine will Knock Off 0.6pp from EZ Growth in 2022

• 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

4 Mar 2022 Activity Gains Pace; the Labour Market Brushed-Off Omicron

• Spain's and Italy's PMIs support our view that their growth is slowing in Q1, despite the February uptick.
• The implosion of Russia's economy will not derail the pick-up in EZ GDP growth in Q2.
• The labour market is on fire, but is still not stoking wage prices pressures.

Melanie Debono (Senior Eurozone Economist)Eurozone

28 Feb 2022 The EZ Economy is Staring Down the Barrel of Stagflation

• 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

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

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