In one line: Services inflation pushed higher by healthcare, education and hospitality.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: A downward revision to Q4 GDP growth?
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Germany’s economy is in a cyclical rut; it remains to be seen whether its problems are more structural.
- Nominal GDP in Germany has been soaring, but higher prices have compressed growth in real terms.
- Many politicians in Germany want to tighten fiscal policy, but will the economy allow it?
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Boosted by major orders in aircraft; core orders were weak.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- GDP in Spain grew by 2.5% last year, more than in any of the other major EZ economies.
- This year, quarter-to-quarter growth will remain solid, such that GDP rises by 2%.
- German industrial orders soared in December but they were skewed by major orders mainly in aircraft.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The ECB’s policy rate is 100-to-150bp too tight; it will align with two-year yields by the end of the year.
- We see near-term downside risk to Bund yields but then look for bear-steepening in H2.
- Our forecasts for the bond markets assume a soft landing in the economy; what if we’re wrong?
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Not enough for a rate cut in March; but April is still on.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Lingering votes to hike Bank Rate distract from most members’ endorsement of rate cuts this year...
- ...Two-year-ahead inflation is forecast nearer 2% under market rates than constant rates; upside skew has gone.
- We still expect the first 25bp cut to come in May, but the risks remain tilted towards a later commencement.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Still consistent with a fall in the ECB’s 2024 inflation forecasts in March.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- EZ inflation likely fell by 0.2pp in January, to 2.7%, with the core rate down 0.3pp, to 3.1%.
- The ECB remains on track to downgrade its 2024 inflation forecasts in March, by a lot.
- German retail sales plunged, again, in Q4; the fall in jobless claims in January is likely a blip.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- This week’s January inflation data will be key for the ECB’s decisions and communication in H1 2024.
- We look for a downside surprise in the EZ, but the January report is a wildcard; anything can happen.
- EZ GDP likely fell in Q4—confirming a recession— worse than the ECB predicted in December.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The ECB left all its policy settings unchanged yesterday, as everyone expected it to.
- President Lagarde stuck to the line that a spring rate cut is unlikely but didn’t explicitly push back on it...
- ...Data next week will, we think, give the Bank the confidence it needs to cut rates first in March.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- This week the ECB will continue to push back against expectations of a rate cut in the first half of 2024...
- ...But the central bank is now happy to underwrite the consensus position of a rate cut by summer.
- We still see the ECB cutting by March, as January and February HICP surprise to the downside.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Pulled lower by a widening primary income deficit.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The slowdown in EZ construction intensified in Q4 and won’t improve any time soon.
- A sharply wider primary income deficit stung the EZ current account surplus in November.
- EZ portfolio outflows accelerated in Q4, but the market setback in January points to a pullback in Q1.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Old news; will January and February inflation be soft enough for a March cut?
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The ECB is not happy with market expectations for a spring rate cut but is fine with June.
- If our forecast for inflation to fall below 2% by February is right, the ECB will cut in March.
- Plunging PPI points to downside risks to services inflation, but the output price PMI is still high.
Claus Vistesen (Chief Eurozone Economist)Eurozone