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
We recently added an extra hike into our interest rate profile for the ECB for this year...
...But we are not changing our view for the SNB; it will keep its key policy rate at -0.75% until at least 2024.
EZ industry is unlikely to be much help to GDP growth in the second quarter.
Claus Vistesen (Chief Eurozone Economist)Eurozone
Inflation rose again in April, and the risk is that it will creep even higher as price increases broaden.
Energy inflation should continue to fall, but will remain elevated through Q2, at least.
The ECB will have to lift its inflation forecasts in June before starting to hike rates, probably in September.
Melanie Debono (Senior Eurozone Economist)Eurozone
EZ energy inflation likely will fall in April, and a cut in German fuel duties could mean a plunge.
Mr. Macron is pulling away in the polls ahead of Sunday's vote; his re-election looks like a good bet.
Business sentiment in France points to slowing GDP growth at the start of Q2, but not a collapse.
Claus Vistesen (Chief Eurozone Economist)Eurozone
The Eurozone’s trade deficit probably widened further midway through the first quarter.
EZ imports from China likely are now slowing, but the cost of energy imports is soaring.
An EU embargo on Russian gas could be an economic own goal, but a crucial political signal.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- EZ unemployment fell in February but a rise in the number on furlough poses risks to the outlook...
- ...We still look for the jobless rate to fall gradually this year, to a record low of 6.5% by December.
- More hot inflation data mark the last day of the ECB’s net asset purchases under PEPP.
Melanie Debono (Senior 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
- The situation in Ukraine is unpredictable, but one thing is certain, energy inflation will remain hot.
- Sanctions to curb the flow of energy from Russia to the EZ are the main economic threat.
- The Bundesbank believes Germany has entered a technical recession; the survey data beg to differ.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- EZ industrial production fell again in Q4, but a rebound is underway; Q1 should be solid overall.
- Output in the EZ auto sector snapped back in Q4; we're hoping for more of the same in Q1.
- A surge in EZ demand for Chinese manufacturing goods is the main driver of the trade deficit in goods.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- A sustained acceleration in imports from China is driving the deterioration in the EZ trade surplus.
- Germany's trade deficit with China blew out in 2021; will 2022 bring stabilisation?
- Watch out for two important statistical distortions in the quarterly EZ trade data.
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
- 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
- German GDP tumbled in Q4, but it rose in France and Spain; we think EZ GDP rose by 0.4% q/q.
- The ESI points to lingering supply-side constraints on manufacturing at the start of 2022.
- This week's CPI data will show that EZ core inflation fell sharply in January; it will rebound quickly.
Claus Vistesen and Melanie Debono (Eurozone Team)Eurozone
- 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
- 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
- Retail sales data had a decent November, but online sales can't offset falling services spending.
- Germany is on track to meet our expectations for Q4 growth, but we're reducing our forecasts in France.
- EZ inflation has peaked; a strong rebound in the core will be a headache for the ECB in Q2 and Q3.
Claus Vistesen and Melanie Debono (Eurozone Team)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
- 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
- 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
- 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
