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
Hawkish comments from Isabel Schnabel seal the deal on a July rate hike, probably by 25bp.
Germany’s nominal trade surplus plunged in March, due mainly to a collapse in exports to Russia.
Retail sales in the Eurozone are flatlining, due almost exclusively to soaring prices.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Higher prices are weighing on spending.
Melanie Debono (Senior Eurozone Economist)Eurozone
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 big four EZ governments already have spent 1-to-1.5% of GDP to combat high energy prices.
More will be needed; we think another 1% of GDP will be committed through Q2, at least.
Industrial production in Spain and retail sales in Italy advanced in February; good news for Q1 GDP.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Pedestrian; sales likely fell by around 0.7% in Q1.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Better than we expected, but still soft overall.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Spain's economy ended last year further below its pre-virus level than other major EZ economies...
- ...Now growth is slowing, and the outlook for Q2-Q4 is clouded by a hit to real incomes.
- The IFO was miserable in March, and real M1 growth points to an EZ PMI of 50 by summer.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- Investor sentiment points to a fall in this week's eco- nomic surveys; brace for downside surprises.
- Near-real-time data signal little in the way of a direct hit to activity from the war in Ukraine, yet.
- The Eurozone's trade deficit narrowed slightly in January; is the deficit with China now shrinking?
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Slide in EZ car sales stalls, for now.
Melanie Debono (Senior Eurozone Economist)Eurozone
- The EZ is now in stagflation; growth forecasts will come down, even as inflation projections rise.
- EZ energy inflation could rise above 40% in the next few months, lifting the headline HICP rate to 7%.
- Economic activity in Germany picked up in January, but growth through Q1 as a whole will be soft.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Consumption had a rough start to Q1, as restric- tions were tightened at the end of December...
- ...But things now are looking up and we think high inflation won’t derail the consumer recovery.
- Volatility is the name of the game in markets for now; a return to pre-Ukraine normality is a long way off.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: The readings in February and March will be much better.
Melanie Debono (Senior Eurozone Economist)Eurozone
- The Swiss economy was resilient in Q4; GDP ended the year 2.0% above its pre-pandemic level.
- Growth will pick up, but inflation will remain low; the SNB will not hike rates with the ECB later this year.
- Spanish inflation jumped to an eye-watering 7.4% in February; energy prices remain a wild card.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Spending, ex-services, isn’t going anywhere, but inflation definitely is.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- 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
- The return of the virus and associated restrictions didn’t hamper EZ tourism much last quarter.
- The start of 2022 isn’t looking good and we doubt Q2 & Q3 will bring tourism back to 2019 levels.
- As a result, the most tourism-reliant EZ economies, such as Spain, will continue to lag behind.
Melanie Debono (Senior Eurozone Economist)Eurozone
- German industrial production rebounded in Q4, but not enough to reverse a terrible third quarter.
- We look for a further increase in Q1, but the gap between output and new orders will remain wide.
- Surveys point to a quick rebound in construction, but supply-side constraints remain a big challenge.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The cat is out the bag; forecasters and markets now look for a significant shift in ECB policy this year...
- ...We concur, to a point; we think QE will end in October, before a 20bp deposit rate hike in January.
- German factory orders rebounded at the end of Q4, but industrial production in France stalled.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Ugly, and services spending certainly slumped further.
Melanie Debono (Senior Eurozone Economist)Eurozone
