European Central Bank
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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 31, 2025 1:28 PM UTC
As Germany faces possibly deeper and more prolonged political deadlock, its disinflation process continues, but there are signs that the downtrend is flattening out and this may be the message into the rest of 2025. Indeed, January HICP inflation stayed at 2.8% an outcome largely as expected. Bu
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 2:09 PM UTC
Germany’s disinflation process continues, but there are signs that the downtrend is flattening out and this may be the message into the rest of 2025. After a largely energy but a still relatively broad rise to an 11-mth high of 2.8% in December, we see the rate down 0.2 ppt to 2.6% in the prelim
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
January 16, 2025 11:05 AM UTC
BOE QT is 3.4% of GDP and means the 2025 total funding is 8% of GDP, which helps explain part of the current pressure on gilt yields (here). This pace is unlikely to change before the BOE review in September 2025, but the QT is partial monetary tightening and will offset some of 125bps of BOE rate
January 14, 2025 8:15 AM UTC
The EUR real exchange rate is well above the 2014 low, while ECB officials are guiding that more rate cuts are coming. 2yr German yields are unlikely to rise much further and will likely come back down in Q2 (here). A January 30 ECB cut will likely build more easing expectations, though more of
January 10, 2025 8:10 AM UTC
· UK Gilts have been dragged higher by rising Treasuries and market concerns that BOE rate cuts will be limited (here), while 10yr Bund yields have also been dragged higher by Treasuries concerns on Fed rate cuts/budget deficit and tariffs. Multi quarter we see this as overdone. We
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 31, 2024 9:53 AM UTC
Germany’s disinflation process continues, with the y/y HICP headline stable at 2.4% in the November estimate, lower than widely expected, albeit where the CPI counterpart rose 0.2 ppt to 2.2%. This was again in spite of apparently stable or resilient services inflation. Even so, the core HICP
December 19, 2024 12:07 PM UTC
• 2yr U.S. Treasury yields can decline initially as the Fed finishes easing (Figure 1), but as the sense grows that the rate cut cycle is stopping, we see the 2yr swinging to a small premium versus the Fed Funds rate – as the market debates the risks of a future tightening cycle. For 10y
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 5, 2024 8:56 AM UTC
With a parliamentary no-confidence vote having toppled the Barnier administration convincingly, France has no government. This far from unexpected development is a political crisis and one that even without the fiscal cuts that the failed Budget envisaged is likely to mean that the country also fa
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 5:07 PM UTC
As France’s political deadlock intensifies amid a likely toppling of the fledgling government, markets are worried about the fiscal fall-out of what may at best be emergency legislation, a so-called Special Law that would keep the country running, but with funding approved month by month. To som
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 1:40 PM UTC
Germany’s disinflation process continues, albeit with the y/y HICP headline stable at 2.4% in the preliminary November estimate, lower than widely expected, but where the CPI counterpart rose 0.2 ppt to 2.2%. This was again in spite of apparently stable or resilient services inflation (Figure 1)
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 3:58 PM UTC
As we have repeatedly underlined, Germany’s disinflation process continues but unevenly. After July saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted to a 41-month low of 2.0% in August, and then down to 1.8% last month, below th
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
November 7, 2024 9:10 AM UTC
After months of clear internal tensions, the three-party coalition collapsed on Wednesday after Chancellor Olaf Scholz (Social Democrat) sacked Finance Minister Christian Lindner (leader of the Free Democratic Party (FDP). The two had been seeing repeated rifts on spending and economic reforms, wi
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 3:35 PM UTC
Germany’s disinflation process continues but unevenly. After July saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted to a 41-month low of 2.0% in August, and then down to 1.8% last month, below the ECB target and well below expect
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 21, 2024 1:59 PM UTC
Germany’s disinflation process continues. After July saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted this month to a 41-month low of 2.0% in August, and then down to 1.8% last month, below the ECB target and well below expectat
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 25, 2024 11:15 AM UTC
Germany’s disinflation process continues. After July saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted this month to a 41-month low of 2.0% in August, ie consistent with the ECB target and well below expectations. Indeed, the C