In one line: Dovish, but upside risks loom in Q4.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The ECB will cut its policy rate by 25bp this week, as widely expected, but what happens in Q4?
- We see a higher chance than markets of an October cut, and a lower probability of December easing.
- Will the ECB lift its Q4 core inflation forecasts this week? We think so, but how far?
Claus Vistesen (Chief Eurozone Economist)Eurozone
- France’s budget deficit won’t shrink much this year, but tough negotiations on the 2025 budget loom.
- September is a key month for budget negotiations; a hung parliament points to high risk of a stalemate.
- The composite PMIs for Spain and Italy, despite rising in August, point to slower GDP growth in Q3.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Solid, but not enough to reverse the plunge in July.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The downturn in the EZ composite PMI was halted by the Olympics in France; only temporarily we think.
- The PMIs point to firming growth in services, while manufacturing is still stuck in recession.
- A big drop in Q2 wage growth seals the deal for a September cut, and helps our call for an October cut.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Services boosted by the Olympics; manufacturing is sinking without a trace.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Construction output jumped in June but still fell over the second quarter as a whole…
- ...This is consistent with a drop in construction capex, which accounts for nearly half of investment in GDP.
- The outlook for the sector is bleak; it will remain a drag on growth for the rest of this year.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- EZ inflation data suggest market pricing for 70bp-worth of easing this year is much too ambitious.
- The ECB will cut by 25bp in September; we still see a second cut in October, but this is a very close call.
- Inflation in food, core goods and energy are all set to firm in Q4, and services inflation will fall only slightly.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Energy inflation will back in August and September; the core will remain high.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: A record high, but not sustainable; net portfolio flows are shifting.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Q2 GDP increase confirmed, despite another drag from industry.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The 0.3% increase in Eurozone GDP in Q2 was confirmed, despite industry remaining in recession.
- The service sector again drove growth; we do not trust the reported fall in service production in May.
- Productivity is not sliding as fast as in recent quarters; the ECB will welcome this development.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The Eurostoxx 50 is currently priced for negative medium-term returns, based on book value.
- Margins are a wild card for EZ equities, but unless they remain near record highs, prices will fall further.
- We look for a further 5-to-10% decline in EZ equities as margins compress and earnings growth slows.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Recessionary, but what’s happening in consumption?
Claus Vistesen (Chief Eurozone Economist)Eurozone
- German manufacturing output rebounded modestly in June, but likely fell back in July.
- Hard data are now consistent with the reported GDP decline in Q2, but what happened to consumption?
- We’re nudging down our Q3 GDP growth forecast in Germany by 0.1pp to 0.2% quarter-on-quarter.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Relief, but it will be short-lived.
Claus Vistesen (Chief Eurozone Economist)Eurozone