- 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
- 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
- The December PMIs indicate that EZ manufacturing production is now outpacing services output.
- German GDP growth underperformed in Q4, according to the PMIs; Spain did relatively well.
- French consumer sentiment remained resilient in Q4, but we look for a setback in Q1.
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
- 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
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
- German core inflation will fall sharply in January, but then rebound; the HICP rate will stay sticky in 2022.
- Spanish and Italian industrial production both fell at the start of Q4, in contrast to increases in the core...
- ...We think industry will be a drag on GDP growth in Q4, just when risks to services activity are rising.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- Factory orders in Germany crashed in October, pegged back by a plunge in large orders…
- …But turnover jumped, by 3.6% on the month, pointing to a consensus-beating production report today.
- German manufacturing likely will do well in Q4, but the virus is now a severe risk for services.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- EZ inflation is running red hot, hitting a record high of 4.9% in November.
- Shipping costs to the Eurozone's most important trading partners are still rising...
- ...Still, the fall in global measures points to shipping costs dragging headline inflation down.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- Lending growth has accelerated in the EZ, thanks to a pick-up in lending to firms...
- ...This is positive for the outlook for EZ investment, but will the new virus wave nip it in the bud?
- The decline in the ESI suggests GDP growth took a leg down in Q4; it will drop further in December.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- B.1.1.529 could be a grim game-changer in the pandemic, but it is too soon to say.
- The slowdown in real M1 growth indicates that the composite EZ PMI will fall to 53 in Q1.
- French consumer sentiment data indicate that unemployment is now below 7%.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
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German consumers' spending soared in Q3, offsetting falling investment and net exports.
We are lowering our Q4 growth forecasts to 0.4-to- 0.5%, from 0.7% before; the virus is a threat.
German investment in machinery and equipment looks terrible; it will get better next year.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- The Q4 survey data in France have been robust so far, pointing to solid underlying GDP growth…
- …But the return of the virus threatens new restrictions, putting Christmas festivities in question.
- We're reducing our forecast for Q4 quarteron-quarter GDP growth, by 0.6pp, to 0.6%.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- The new virus wave and associated return of restrictions adds to the downside risks for Q4...
- ...November's rise in the PMI hasn't captured the recent reimposition of restrictions in Germany.
- GDP growth in Q4 looks to be closer to 0.6% quarter-on-quarter; we are nudging down our forecast.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
