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February 13, 2025 12:33 PM UTC
European politicians are surprised and angry at the U.S. stance on a peace deal for Ukraine and less military support for Europe, but eventually they will have to accept the new reality. Europe is too divided to provide security guarantees to Ukraine on its own. A further increase and acceleration
February 11, 2025 8:30 AM UTC
The ECB staff forecasts on March 6 will be revised upwards for 2025 and 2026, due to the surge in wholesale gas prices. However, the ECB will likely take the view that 2 round effects from higher gas prices on balance are unlikely to boost core inflation (especially given wage tracker softness) an
February 7, 2025 1:14 PM UTC
A well-advertised research paper from the ECB suggests that the real neutral rate of interest for the EZ has not changed very much in the last few years but with a likely range of between -0.5% and +0.5%, but still well below estimates for what is so-called r* prior to the pandemic (Figure 1). The
February 5, 2025 9:06 AM UTC
President Trump has made it clear that the EU is going to face US tariffs in the not too distant future. Admittedly, tariff threats have been used as the basis for negotiation elsewhere, this may be the case for the EU too – as was the case during Trump’s first term. As for the EU, it does h
February 3, 2025 10:38 AM UTC
There were mixed messages in the higher-than-expected January flash HICP numbers. For a third successive month, the headline but this time by ‘only’ 0.1ppt, to a six-month high of 2.5%, but where the core (again) stayed at 2.7%, partly due to what is seemingly relatively stable services inflat
January 30, 2025 2:34 PM UTC
It was always likely that the ECB verdict at this month’s Council meeting would be less resounding than that seen in December. A fifth 25 bp discount rate cut did occur, to 2.75%, but may not have seen any demand to at least consider a larger move as was the case last month. But the door is le
January 30, 2025 10:31 AM UTC
After a series of upside surprises, EZ GDP both weakened and undershot both consensus and ECB expectations in Q4 (Figure 1). There is a certain irony that for an ECB Council that has evidently shifted its main concern away from broadly falling inflation to real economy weakness, the soft Q4 GDP outc
January 29, 2025 11:01 AM UTC
Ahead of what seems to be a routine decision tomorrow, recent monetary data complicate the policy outlook for the ECB in the months ahead. Positively, ECB compiled money data show discernible signs of as revival in bank lending, even for companies, although still hardly any growth in real terms.
January 27, 2025 11:42 AM UTC
There were mixed messages in the December HICP numbers. For a second successive month, the headline rose 0.2 ppt, but to 2.4%, but where the core (again) stayed at 2.7%, partly due to what is seemingly stable services inflation. Once again, higher energy costs, mainly base effects, were the main
January 24, 2025 10:32 AM UTC
It is unlikely that the ECB verdict at this month’s Council meeting will be anything like as resounding as that seen in December. A fifth 25 bp discount rate cut is virtually assured, to 2.75%, but may not see any demand to at least consider a larger move as was the case last month. Admittedly
January 22, 2025 11:33 AM UTC
There is certain irony that for an ECB Council that has evidently shifted its main concern away from broadly falling inflation to real economy weakness, its next policy decision arrives on the day of the next GDP release. We see the ECB cutting a further 25 bp but with some Council members again cal
January 16, 2025 1:27 PM UTC
As the account of the December 11-12 Council meeting noted, a fourth 25 bp discount rate cut was agreed but there appeared to be a minority wanting a 50 bp move. But this account also shows some confusion as to just what the advertised change in forward guidance (in which the ECB accepts that on-tar
December 31, 2024 10:48 AM UTC
There were mixed messages in the November HICP numbers. After a downward revision, and thus below consensus thinking, the headline rose 0.2 ppt to 2.2%, but where the core stayed at 2.7%, partly due to what is seemingly stable services inflation. Higher energy costs, mainly base effects, were th
December 17, 2024 8:16 AM UTC
· Once again, it does seem as if EZ activity expectations are being pared back in line with our below consensus thinking, most notably for next year. The result is that while the economy has been growing afresh it is doing so timidly, with downside risks persisting more clearly into 2
December 12, 2024 3:02 PM UTC
A fourth 25 bp discount rate cut at this latest Council meeting, to 3%, was also the third in a row. But this meeting was important for the (as we expected) change in forward guidance in which the ECB accepts that on-target inflation is likely to be durable enough so that it no longer has to pursue
December 4, 2024 3:53 PM UTC
While a larger move is possible, we think that the ECB will instead opt for a fourth 25 bp discount rate cut at this month’s Council meeting, to 3%. But this meeting may be as important for what may be a change in forward guidance in which the ECB accepts that on-target inflation is likely to be d
December 2, 2024 1:28 PM UTC
While real economy considerations seem to have taken over as the policy focus for the ECB majority, there are still some mutterings about apparent resilient services inflation. The latter is certainly the case when such inflation is measured on the conventional but possibly untimely y/y basis. How
November 29, 2024 11:04 AM UTC
There were mixed messages in the November flash HICP. Matching consensus thinking, the headline rose 0.3 ppt to 2.3%, but where the core stayed at 2.7%, partly due to what is seemingly stable services inflation. Higher energy costs, mainly base effects, were the main factor behind the rise back
November 28, 2024 12:54 PM UTC
Concerns about the 2025 French budget failing have caused new spread widening for 10yr France v Germany. What are the prospects?If the new and still very much minority government reaches agreement with National Rally and passes the 2025 budget, then it will produce some relief in markets but will
November 27, 2024 11:01 AM UTC
Getting a reliable coincident assessment of the EZ real economy, let alone any insight into the likely near-term outlook, is difficult. EZ GDP data are prone to rapid revision, arrive only quarterly and only with a long lag offer detail from either the spending or output side that would allow a be
November 21, 2024 9:59 AM UTC
Slightly higher energy costs were the main factor behind the rise back in HICP inflation in October to 2.0% having fallen to a well-below target 1.7% in the previous month (Figure 1). The outcome was a little higher than expected, not least with another apparently resilient services inflation read
November 20, 2024 11:30 AM UTC
It seems that worries about weaker growth are reverberating more discernibly and more broadly within the ECB. Indeed, the worries may now be at least twofold. Clearly, weaker growth risks possible (added) downside risks to inflation, with BoI Governor Panetta yesterday warning that restrictive mon
November 18, 2024 9:25 AM UTC
We see scope for 10yr German Bund yields to remain close to current levels in the next 1-2 years, despite our new forecast of rising U.S. Treasury yields (here[MG(1] ). A weak economic recovery; fiscal consolidation rather than easing in the U.S. and less underlying inflation pressures should all
November 14, 2024 1:42 PM UTC
It is clear but hardly surprising that the ECB rate cut last month was driven as much, if not more by real economy consideration than prices or possible fiscal tightening. The Oct account 16-17 suggested that the downside risks to the growth outlook in the September baseline, with the associated w
October 31, 2024 10:42 AM UTC
Slightly higher energy costs were the main factor behind the rise back in HICP inflation in October to 2.0% having fallen to a well-below target 1.7% in the previous month (Figure 1). The outcome was a little higher than expected, not least with another apparently resilient services inflation read
October 30, 2024 10:26 AM UTC
Even more clearly, the EZ economy is diverging as Germany stutters while Spain prospers. However, the risks are that the whole of the EZ is weakening given the possibly gloomier messages from business survey data. Admittedly, there were some upside surprises in the Q3 numbers, albeit with the un
October 24, 2024 10:13 AM UTC
It is clear that PMI data are a key component of the data analysis of the ECB. We are somewhat sceptical of the data, at least in its ability to track GDP growth coincidently and accurately. But the data does offer a wide-ranging insight into private sector economic momentum. With this in mind t
October 23, 2024 9:20 AM UTC
Lower energy costs were the main factor behind the sharp fall in HICP inflation, which fell from 2.2% y/y in August to 1.7%, the latter revised down a notch from the flash estimate. This is the first sub-target reading since June 2021. Services inflation also edged lower, this allowing the core ra
October 22, 2024 12:02 PM UTC
At best, the EZ economy is diverging ever more clearly as Germany falters while Spain prospers. However, the risks are that the whole of the EZ is weakening. Indeed, in contrast to ECB and consensus thinking of a second successive quarter of 0.2% q/q GDP growth, we see a clear risk that the EZ e
October 17, 2024 1:45 PM UTC
The latest 25 bp rate cut from the ECB was obviously not anticipated at the previous meeting, although perhaps the Council was more open to such a move than the press conference then suggested. But it is clear a reassessment is occurring, not just of the inflation outlook but the real economy too.
October 16, 2024 2:17 PM UTC
All and sundry wait as much for the what the ECB says tomorrow (Oct 17) than what it does (ie cut by another 25 bp). The consensus is that the Council will have to sound much more cautious about downside risks to both (its somewhat optimistic) growth outlook and its too pessimistic inflation pictu
October 11, 2024 9:04 AM UTC
The 2025 budget could pass via a sequence of events, but the potential outcome is so uncertain that it is difficult to attach a probability to the various scenarios. Drama will be high for the next 12 months, which will also most likely see a parliamentary election from July 2025. France has been
October 10, 2024 12:56 PM UTC
It now seems very likely that the ECB will cut rates at a successive Council meeting for the first time in this easing cycle dating back to June. To date the ECB has allowed the impression that it would ease only every other meeting, ie once a quarter, partly to give it access to what it sees as k
September 30, 2024 2:20 PM UTC
Recent economic data and national CPI numbers have increased the economic case for less restrictive policy. Combined with softening of guidance from ECB Lagarde and Schnabel, this leaves us inclined to now forecast a 25bps cut at the October 17 ECB meeting. This will likely be followed by a 25bp
September 27, 2024 9:38 AM UTC
Lower fuel prices will be a key factor in September’s HICP numbers, and enough of a factor to pull the y/y rate to 1.9%, which would be the lowest in over three years and this despite still little material change in services inflation. Indeed, the risk is of an even lower outcome. This may be sh
September 23, 2024 9:17 AM UTC
· It does seem as if EZ activity expectations are being pared back in line with our below consensus thinking, most notably for next year. The result is that while the economy has been growing afresh it is doing so timidly, with downside risks persisting through 2024 and 2025 and where
September 12, 2024 2:16 PM UTC
That the ECB cut the discount rate again by another 25 bp (to 3.5%) was no surprise. Neither was an unchanged tone at the press conference, with no clearer acknowledgment of downside risks even given ECB GDP projections (Figure 1) which moved down more toward our long-standing below-consensus thin
September 6, 2024 10:53 AM UTC
The fact that EZ growth was revised down a notch to 0.2% in Q2 is of little importance – it partly reflects a small recovery in imports that we have been flagging for some time would be a likely break on recorded activity. Over and beyond more signs of slowing wage pressures in Q2 data, more not
September 5, 2024 11:18 AM UTC
That the ECB will cuts official rates again when it gives its next policy verdict on Sep 12 is now almost a given. Even the hawks on the Council are willing to concede that the discount rate can (and maybe even should) fall another 25 bp (to 3.5%). This will come alongside larger reductions to t
September 4, 2024 10:36 AM UTC
There are suggestions that worries about weaker growth are now reverberating within the ECB, albeit with the hawks still more mindful of service price resilience. But the former worries chime with our long-standing concern of downside risk to what we still see is a below-consensus growth outlook,
August 30, 2024 9:40 AM UTC
Prior to these latest HICP numbers, it could be argued that the EZ disinflation process has stalled given that no further drop beyond that to 2.4% in April had occurred. Indeed, somewhat unexpectedly, headline HICP inflation rose a notch to 2.6% in July, reversing the slide seen in June. This is
August 27, 2024 9:47 AM UTC
A keynote speech by ECB Chief Economist Lane at Jackson Hole over the week-end suggested that further monetary easing is on the way but in a path that has to steer between the risks of moving too fast against those from moving too slowly. Very clearly he implied that policy will still have to rema
August 22, 2024 12:24 PM UTC
Elements of the July accounts help build confidence in more easing we expect ECB Lane Jackson Hole speech on Saturday to also provide comfort in near-term rate expectations. However, it is clear that key ECB board members do not want to be as clear as the run-up to the June meeting, but this could
August 14, 2024 2:02 PM UTC
It could be argued that the EZ disinflation process has stalled given that no further drop beyond that to 2.4% in April has occurred. Indeed, somewhat unexpectedly, headline HICP inflation rose a notch to 2.6% in July, reversing the slide seen in June. This is even the case regarding the core ra
August 12, 2024 9:52 AM UTC
The EZ economy has been seeing downside risks but ones that may now be materializing. The fact that growth rates among the EZ main economies have diverged of late (Spain robust, Germany contracting afresh) actually reflects a marked disparity in growth rates between strong services and persisting
August 5, 2024 11:57 AM UTC
Amid waning momentum in business surveys of late, most notably in services, the ECB was starting to see some of the downside growth risks it has flagged actually start to materialise. But the equity market slump now unfolding provides an added and significant downside risk. It has direct adverse
July 31, 2024 9:32 AM UTC
It could be argued that the EZ disinflation process has stalled given that no further drop beyond that to 2.4% in April has occurred. Indeed, somewhat unexpected, headline HICP inflation rose a notch to 2.6% in the July flash, reversing the slide seen in June. This is even the case regarding the
July 30, 2024 9:31 AM UTC
At best, the EZ economy is diverging ever more clearly as Germany falters while Spain prospers more discernibly. But while EZ GDP may have shown a sub-trend type result of 0.3%, thereby matching the Q1 outcome, there are questions about momentum, with survey data suggesting it is both feeble and p
July 25, 2024 9:19 AM UTC
According to revised official national accounts data, the EZ economy actually avoided what was previously suggested to have been a modest recession in H2 last year. Moreover, the economy sparked back in Q1, albeit against a backdrop of marked, if not increasing, national growth divergences but where
July 23, 2024 10:09 AM UTC
The clear disinflation trend was still evident even after higher and higher-than-expected May numbers, where the headline moved up from 2.4% to a three-month high of 2.6%. That disinflation trend looks more discernible after the partial drop back to 2.5% seen in the June HICP, albeit with some far