In one line: A record high, but not sustainable; net portfolio flows are shifting.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The Eurozone’s trade surplus rebounded in June, but net trade in goods likely dragged on growth in Q2.
- We’re expecting this net trade drag on growth to continue for up to 12 months.
- The trend in import growth, however, remains much weaker than implied by our consumption forecasts.
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
- The link between the ECB’s policy rate and the Taylor Rule, which broke after the GFC, is reasserting itself.
- A Taylor Rule with inflation expectations suggests the ECB is behind the curve on easing.
- The model also indicates that the policy rate won’t fall as much as the consensus expects.
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
- The ECB will provide liquidity via LTROs before resorting to an emergency rate cut.
- We now think the ECB will cut by 25bp in September and October, but not in December.
- Markets now agree with our SNB call, so we’re sticking to our guns for two more cuts this year.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: A relief, but production likely fell back in July.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Swiss inflation held steady in July, but this means it was still in line with the SNB’s target.
- The headline inflation rate will creep lower in the coming months, allowing for further easing.
- EZ industry ended Q2 on a good note, enough to escape recession last quarter and boost GDP.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Blame Italy for the upside surprise.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Eurozone unemployment rose slightly in June, but the underlying trend is still flat.
- Surveys point to downside risks to employment growth and upside risks to unemployment in H2…
- …Yet our own GDP growth forecasts point to a better near-term outlook.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Higher, but core inflation fell back.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Inflation was slightly hotter than we expected in July but is still on track for a sharp fall in August.
- Disinflation in core goods and food will reverse soon, creating a challenge for the ECB in Q4.
- We still see an ECB rate cut in September, but no longer in December; we now have two cuts in H1-25.
Claus Vistesen (Chief Eurozone Economist)Eurozone
