- We look for lower consensus growth forecasts in Q4, even as inflation forecasts advance further.
- Fiscal stimulus is a wildcard for 2022 GDP forecasts, but near-term risks remain tilted to the downside.
- Stagflation risks are real, warning of less potent fiscal stimulus and a more constrained ECB.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The Spanish government is continuing to support the recovery next year...
- ...But its GDP growth forecasts, reliant on hefty in- creases in investment, seem too high to us.
- The budget deficit is all but certain to be higher than the government’s 5% estimate next year.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- German auto output crashed in August; we're nudging our Q3 GDP growth forecasts down, to 2.0% q/q.
- The Q3 plunge in German industry is clear evidence that supply-side woes are now hitting demand.
- The services surplus in France is rising strongly; net exports likely rebounded in Q3.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Inflation in the Eurozone rose further in September, but we are cautiously confident that this is the peak.
- Core inflation will remain high in Q4, then fall in Q1, but then rebound quickly; this could unsettle bonds.
- Ignore the negative messages from the monthly consumption data; spending jumped in Q3.
Claus Vistesen (Chief Eurozone Economist)Eurozone
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Ms. Lagarde strikes a dovish tone at the ECB Forum, but sticks to the script that PEPP will end in Q1.
Rate expectations have increased substantially in the EZ; we doubt the ECB is happy with this.
Solid consumer sentiment data in France and Germany offer contrast to soft business surveys.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The IFO dipped again in September; it still points to solid growth, but Q4 risks are tilted to the downside.
- ISTAT's ESI eased again in September, but points to decent GDP growth in Italy in Q3...
- ...Growth in Italy will slow in Q4, but higher gas prices and/or an Evergrande default won't be to blame.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The message from the PMI: The reopening boom is over, and supply-side woes are hitting demand.
- We are adjusting our EZ GDP growth forecast for Q4 down a tad, to 0.7-to-0.8% quarter-on-quarter.
- No change from the SNB, as expected; Spain's Q2 GDP growth cut by more than half.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- No one expects any changes at the SNB today, us included; we think policy will be on hold until 2024.
- The CHF will strengthen to the end of the year, but not enough to warrant significant FX intervention.
- Markets are worried about Evergrande—rightly—but contagion is limited, for now.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Our 2022 core inflation forecast signal that trouble is brewing for markets and the ECB.
- Core inflation will fall in Q1, but it will be back at just under 2% by spring, and through the summer.
- The ECB will stay dovish, but it will lift its inflation forecasts further; this will unsettle markets.
Claus Vistesen (Chief Eurozone Economist)Eurozone
Core inflation in the Eurozone is rising, but it's difficult to say how quickly, given one-off distortions.
Is the ECB preparing markets for a lift to inflation forecasts in Q4? That could be a forecast error.
Construction in the euro area seems to be stagnat- ing; supply-side constraints are to blame, in part.
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
- The ECB will slow the pace of PEPP in Q4, probably by around €20B, to €60-€70B per month.
- Bond yields fell as Ms. Lagarde spoke, but will the ECB's decision on PEPP in Q4 satisfy markets?
- The German trade surplus snapped back in July, as imports plunged; more of the same is coming.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The ECB will announce a slowdown in the pace of PEPP today, but markets likely won't flinch.
- The central bank's new forecasts will deliver upgrades to the outlook for growth and inflation.
- Trade data in France suggest that tourism is rebounding, but a full recovery is still a way off.
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
- 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
- EZ inflation is running hot, and it will rise further in Q4; will markets and the ECB flinch?
- German unemployment fell further midway through Q3, and further improvement is in store.
- Consumers' spending, ex-services, in France dipped in July, but Q3 as a whole will be decent.
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
- 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
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
