EZ unemployment was still falling by the end of Q1, defying the initial shock over the war in Ukraine.
The rate of improvement in the EZ labour market is now slowing, but it won’t stall.
Discretionary spending on goods in Germany is under pressure from higher inflation.
Claus Vistesen (Chief Eurozone Economist)Eurozone
The ECB is holding the line that QE will end at the beginning of the third quarter.
We still look for two hikes in the deposit rate this year, by 25bp in September and December.
Data today likely will show that EZ industrial production, ex-construction, rose solidly in February.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The rate applied to TLTRO borrowings will rise from June, reducing revenues in the banking system.
- We doubt the ECB will extend the special interest rate period for TLTROs...
- ...But suspect it will raise the tiering multiple to help support bank lending as funding rates rise.
Melanie Debono (Senior Eurozone Economist)Eurozone
- The EZ economy expanded by 0.3% q/q in Q4, in part due to a boost from the Italian economy.
- Growth in both Italy and the EZ is slowing now, but will snap back in Q2.
- EZ headline and core inflation fell in January, but remained high, and the latter will rebound quickly.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- Inflation in the EZ has peaked, but core inflation above 2% will be a challenge for the ECB in 2022.
- Watch services inflation closely after the decline in January; it could hit 3%-plus in Q3.
- We see three conditions for the ECB to lift its deposit rate by 30bp in H1 2023.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The EZ's trade surplus in goods is a lot perkier if we choose to believe the ECB's current account data.
- Net services exports likely jumped in Q4, but this means intellectual property investment plunged.
- EZ portfolio outflows are now slowing, belatedly; inflows signal trouble for equities in 2022.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- We still think net trade supported GDP growth in Q4, despite the nominal goods trade deficit.
- Leading indicators suggest net exports won't pro- vide much of a boost to GDP growth in 2022.
- Full-year German GDP data for 2021 suggest growth was slower than previously thought in Q4.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- German factory orders are running hotter than manufacturing production...
- ...And the jump in manufacturing turnover points to a consensus-beating production report today.
- Headline inflation in Germany was broadly stable in December, but the core rate rose further.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- Advance November retail sales data point to relative strength in EZ consumption midway through Q4.
- Germany's labour market recovery continued in Q4, but surveys warn of a setback in Q1.
- Headline inflation in France remained high in December, but energy inflation is now falling.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The upward revision to Q3 GDP in Spain still leaves it further below the Q4 2019 level than elsewhere...
- ...The recovery has now slowed sharply; we look for just 1.0% growth in Q4; risks are to the downside.
- Data over the holidays are likely to show soft retail sales and yet more softening in business surveys.
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
- Germany's nominal trade surplus in goods fell further in October, but real net trade rebounded.
- Net exports in services in Germany collapsed in Q3; that won't happen again in Q4.
- The race to replace Jens Weidmann as Buba president is on; all contenders are relatively dovish.
Claus Vistesen and Melanie Debono (Eurozone Team)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
- 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
- Inflation in the Eurozone is still rising, but it will cool next year as core goods and energy inflation ease…
- …But rising services inflation will keep the core rate uncomfortably high for the ECB in H1 22.
- Construction output in the EZ rebounded at the end of Q3; we look for further gains through Q4.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- EZ GDP and employment rebounded robustly in the third quarter, but growth is now slowing.
- We're sticking to our view of 0.8% q/q GDP growth in Q4, but risks are piling up to the downside.
- Core inflation in France will remain close to 1.5% through Q4, but we think the trend is around 1.0%.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- Spain's GDP breakdown suggests that consumers' spending fell in Q3; it almost surely didn't.
- An upward revision to consumption will offset down-ward revisions to net trade and manufacturing.
- We think revisions will show that GDP rose by 2.5% in Q3, 0.5pp quicker than first estimated.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- German factory orders are losing momentum, and output flatlined at the end of Q3.
- Virus cases are still rising in the Eurozone; Germany is hit hardest, due to a surge in the south-east.
- The PMIs point to EZ GDP growth at 0.5-to-1.0% q/q in Q4, with risks tilted to the downside.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- The EC is adamant that governments will have to fend for themselves to combat higher gas prices.
- EZ countries are combining tax cuts and subsidies to shield the economy from higher electricity prices.
- It remains unclear whether Gazprom will supply enough gas to Europe for prices to keep falling.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
