28 Sept 2022 Eurozone Monitor If We are Right on Inflation, the ECB will Hike by 75bp Next Month

• We detect no push-back from ECB policymakers against the idea of a 75bp rate hike next month.
• The ECB is clear in its message; higher rates are needed to reduce demand in line with supply.
• Quantitative tightening makes little sense in the EZ, but the discussion has started, all the same.

Claus Vistesen (Chief Eurozone Economist)Eurozone

26 Sept 2022 Eurozone Monitor More Recessionary PMI Data in the EZ

• The EZ composite PMI sank further in September, consistent with GDP falling in the third quarter
• Supply-side tensions eased in September, but higher energy costs drove a rise in input price inflation.
• Markets look for the ECB deposit rate to end 2022 at 2.25, with 75bp more in 2023; that's too much. 

Claus Vistesen (Chief Eurozone Economist)Eurozone

21 Sept 2022 Eurozone Monitor The EZ Current Account Crashed at the Start of the Third Quarter

• The Eurozone’s current account swung to a big deficit in July, playing catch-up with Eurostat’s data.
• Currency weakness is still mainly increasing the cost of imports; but exports will benefit, eventually.
• Portfolio in-and outflows are collapsing, and we think this trend has further to run.

Claus Vistesen (Chief Eurozone Economist)Eurozone

15 Sept 2022 Eurozone Monitor Europe Faces Difficult Trade-Offs on Energy as Winter Approaches

• The EU proposes further windfall taxes and energy saving to get through winter.
• Brussels is also mulling big reforms of electricity markets, but likely after Christmas.
• Delinking gas and electricity prices in the EU would risk outright supply shortages during peak demand.

Claus Vistesen (Chief Eurozone Economist)Eurozone

13 Sept 2022 Eurozone Monitor The ECB is Playing a Risky Game, but it has no Choice

• No one knows how the EZ economy will respond to a 250-to-300bp increase in interest rates.
• But the ECB is not necessarily making a policy mistake; the surge in inflation can’t be ignored.
• Sustained fiscal stimulus and a resilient labour market offer hope that the ECB will get away with it.

Claus Vistesen (Chief Eurozone Economist)Eurozone

6 Sept 2022 Eurozone Monitor The End of Russian Gas Flows is Pushing the EZ into Recession

• The surge in gas prices adds to our conviction that inflation will remain high, despite a hit to EZ activity.
• A probable EZ recession is weighing heavily on the outlook for Switzerland’s economy in H2.
• EZ investor sentiment tumbled in September; it will sour further as the ECB continues to hike.

Melanie Debono (Senior Eurozone Economist)Eurozone

9 Aug 2022 EZ Monitor Are the Largest EZ Economies Already Rationing Energy

We now think it’s likely that the EU manages to fill its gas storage levels to the target 80% by November.

Storage will be drained more this winter than in the past, given lower flows, even assuming no cold snap.

This is despite rationing, which we doubt can be avoided, and will push the EZ into recession by Q4.

Melanie Debono (Senior Eurozone Economist)Eurozone

19 July 2022 Fiscal Aid in Spain and Italy is Not Enough to Boost Consumption

Italy’s overall aid to offset rising living costs still trails that in Spain, despite new fiscal support.

The measures announced so far likely won’t fully offset the hit to real incomes from higher inflation.

Windfall taxes are not enough, and further debt issuance will keep a floor under debt servicing costs.

Melanie Debono (Senior Eurozone Economist)Eurozone

8 July 2022 No Wage-Price Spiral this Year, but Next Year Could be Different

Wages are rising across the Eurozone’s largest economies, but nowhere near as quickly as inflation.

The squeeze on incomes will ease over the coming months as inflation falls, but it will remain severe.

A wage-price spiral is a risk for markets and the ECB next year, even with ’normal’ real wage growth.

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

16 May 2022 Is it Safe for Investors to Start Buying Eurozone Equities?

The medium-term outlook for EZ equities has improved significantly in the past 12 months...

...But earnings expectations have to fall further in the near term, weighing on prices over the summer.

EZ manufacturing will slow sharply in Q2; core inflation pressures in France have intensified.

Claus Vistesen (Chief Eurozone Economist)Eurozone