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Eco Pulse

Eurozone: Waiting for a more significant disinflation
24/03/2023 • By Hélène BAUDCHON

Give or take a few details, the economic overview for February is a carbon copy of the economic overview for January: rather positive in terms of survey data, negative in terms of inflation.

Charts of the Week

Eurozone: An unprecedented decline in new lending for house purchase
22/03/2023 • By Thomas HUMBLOT

The interest rate on new home loans for eurozone households rose by an unprecedented 177 basis points (bps) year-on-year in January 2023. It stood at 3.1% this past January compared with 1.3% in September 2021, its lowest level ever.

EcoTV Week

Business insolvencies in Western Europe: a worrying increase?
16/03/2023 • By Stéphane Colliac

Business insolvencies started to increase again in Western Europe during 2022. In the United Kingdom and Sweden, where growth has deteriorated since the start of 2022, these insolvencies were even higher than their pre-Covid level, with a more significant increase in retail and wholesale trade. In the Eurozone, insolvencies are still below pre-Covid levels, but the current tightening of credit conditions raises the risk that they will reach those levels during 2023. This also applies to France, where there is a risk of wider negative consequences, in particular because these insolvencies take the form of liquidations to a greater extent than before Covid.
Charts of the Week

Germany vs. France: German consumers have confidence in the recovery; the French, not yet
15/03/2023 • By Stéphane Colliac

The European Commission survey of consumer confidence has found, over the past four months, a marked improvement amongst German consumers, driven by an upturn in their expectations for the general economic situation. Conversely, French consumer confidence remains depressed and is still not showing any sign of improvement. Assessments of the past situation are also diverging, with that in Germany also improving, albeit to a lesser extent.

Eco Week

Eurozone: the headache of slow disinflation
06/03/2023 • By William DE VIJLDER

The preliminary inflation numbers for February had the effect of a cold shower due to the acceleration of core inflation. To assess the observed price developments since the start of last year, monthly inflation has been calculated for the more than 400 HICP components. The frequency distribution for average monthly inflation between October 2022 and January 2023 has hardly shifted compared to that for the first quarter of 2022 but the nature of inflation has shifted [...]

Eco Week

Eurozone: Monetary policy’s long and variable lags: the case of the Eurozone
27/02/2023 • By William DE VIJLDER

Monetary policy influences the economy with long and variable lags. They should be considered when assessing the effects of past rate hikes on inflation and its drivers. Bank lending surveys may act as a leading indicator. Historically, tighter credit standards and weak expected credit demand were followed by slower growth of company investments and households’ housing investments. However, the relationship between credit demand and supply factors and household consumption is very weak [...]

Eco Pulse

Eurozone: Growth that bends but doesn’t break
24/02/2023 • By Hélène BAUDCHON

In January 2023, according to S&P Global PMI data, the business climate continued to improve for the third month in a row, bringing the composite index just above the 50-point expansion mark for the first time since June 2022. This recovery applies to both the manufacturing sector and services, and it is good news. We regard it as a sign of relief following over-pessimism at the end of 2022 fuelled by fears about energy supply and soaring prices. A relapse cannot be ruled out.

Charts of the Week

Disinflation: it is a matter of scale
15/02/2023 • By Hélène BAUDCHON

While goods disinflation is expected to increase, or even turn into deflation in the coming months, services inflation is expected to show more inertia (due in particular to the shelter component), slowing the overall decline in inflation.

Eco Week

Credit Pulse: Rising interest rates catch up on bank lending
06/02/2023 • By Laurent QUIGNON

Banks surveyed by the ECB between 12 December 2022 and 10 January 2023 as part of its Bank Lending Survey (BLS, published on 31 January) report a tightening of the criteria for all loan categories in the fourth quarter of 2022. For companies, tightening is even the most pronounced since the sovereign debt crisis (2011).

Eco Pulse

Eurozone: Will a contraction in GDP be avoided again in Q4?

27/01/2023 • By Hélène BAUDCHON

Surprisingly, according to European Commission surveys such as the Standard Poor's Global PMIs, the business climate improved quite significantly in the Eurozone despite the accumulation of setbacks. The improvement was evident in all activity sectors as well as in relation to advanced components (for new orders). However, the level of the surveys remains relatively depressed.

Eco Week

Eurozone: starting the year on an upbeat note
09/01/2023 • By William DE VIJLDER

The drop in gas prices, the decline in headline inflation and the improvement of survey data in December have created a feeling that for the Eurozone 2023 might be better than expected hitherto. The survey data bode well for the growth momentum at the turn of the year, which could create a favourable carry-over effect for GDP this year and some hope that lower inflation will mean fewer ECB rate hikes. However, caution is warranted [...]

Eco Perspectives

Eurozone: will there be a growth outage this winter?
15/12/2022 • By Hélène BAUDCHON

It seems highly likely that for the eurozone, 2023 will bring an easing in inflation, a contraction in GDP and a peak in the ECB’s policy rates. The uncertainties lie in the scale of disinflation and of the recession, and in the level and timing of the peak in rates [...]

Eco Week

Eurozone: November’s pleasant surprises
05/12/2022 • By Hélène BAUDCHON

Following in the footsteps of the US inflation figures for October, Eurozone inflation also surprised favourably by coming in below estimates. Eurostat’s flash estimate of an annual rate of 10% in November was lower than the consensus figure of 10.4%. This raises hopes that Eurozone inflation has finally peaked, and indeed this looks likely. It is our scenario, but considerable uncertainty remains and caution is required.

Eco Week

Eurozone: the surprising resilience of the labour market, will it last?
20/11/2022 • By William DE VIJLDER

Since the start of this year, the European Commission’s industry sentiment survey has seen a significant decline, yet companies continue to report that labour remains a key factor limiting production. This is probably due to order books that remain at record high levels in terms of duration of assured production. Through their impact on the growth of employment and wages, labour market bottlenecks should provide some resilience to consumer spending when the economy is turning down [...]

Eco Week

Another negative surprise on inflation and a pleasant one on growth 
13/11/2022 • By Hélène BAUDCHON

Harmonised inflation in the Eurozone surprised again unfavourably in October, reaching 10.7% year-on-year according to Eurostat’s preliminary estimate, compared to the Bloomberg consensus forecast of 10.2%. It was the second month in a row of such a large acceleration in prices (+0.8 points). This was not the only bad news: half of this acceleration can be attributed to core inflation, 0.3 points to food inflation and 0.1 points to the energy component [...]

Eco Week

Credit pulse in the eurozone: new peak in September 2022, demand slowdown and tightening of lending conditions expected in Q4
06/11/2022 • By Laurent QUIGNON

After posting negative figures for most of 2021, the credit impulse returned to positive territory in early 2022 and rose to unprecedented levels (+3.8 points in August 2022 and +3.7 points in September 2022). This growth contrasts starkly with the sharp slowdown in the eurozone’s GDP in Q3 2022 (+0.2% quarter-on-quarter, compared to +0.8% during Q2 2022), which it undoubtedly helped to limit [...]

Eco Week

The disinflation of 2023, between hope and uncertainty
30/10/2022 • By William DE VIJLDER

The latest ECB survey of professional forecasters (SPF) shows a downward revision of the growth outlook and an upward adjustment of the inflation forecast. For next year, the real question is not about the direction of inflation but about the speed and extent of its decline. Slower than expected progress could convince the ECB of the need for more rate hikes than currently priced by markets, implying a bigger output cost of bringing down inflation [...]

Charts of the Week

Eurozone: the contribution of supply-side issues to food price inflation

11/10/2022 • By Stéphane Colliac

Eurozone inflation reached the 10% y/y mark in September, according to Eurostat’s preliminary estimate, the highest-ever reading since the zone’s inflation rate has been measured. Energy prices were a major factor (up 40.8% y/y). In parallel, food prices rose at an increasingly rapid pace, with the harmonised index (also including alcohol and tobacco) up 11.8% y/y in September [...]

Eco Week

Rising interest rates and public debt sustainability
10/10/2022 • By William DE VIJLDER

Due to the recent significant increase in interest rates, Eurozone countries now have a borrowing cost on newly issued debt that, for an equivalent maturity, is higher than that of the existing debt. From a debt sustainability perspective, this necessitates a smaller primary deficit or a larger surplus, depending on whether the average interest cost is, respectively, lower or higher than the long-term nominal GDP growth rate [...]

Eco Week

Gloomy September, double-digit inflation, marked deterioration in confidence surveys

02/10/2022 • By Hélène BAUDCHON

Dark clouds are continuing to gather over the Eurozone economy. The first set of data available for September is not positive and this can be seen in our Pulse. Looking at the survey data, the blue area (recent conditions) is shrinking when compared to the dotted line (conditions four months earlier) and even, on some indicators, when compared to the grey dodecagon (the long-term average). The opposite is true for the inflation data [...]

EcoTV Week

Euro area : Outstanding bank loans’ developments not yet dampened by the increase in rates
30/09/2022 • By Laurent QUIGNON

The rise in market interest rates since the beginning of 2022 has led to higher bank lending rates in the euro area. Both rates of loans for housing purchase and those of loans to non-financial corporations have been affected. For the time being, developments in bank loans outstanding do not reflect the tightening in bank lending conditions but the early consequences could materialize in 2023.
Eco Perspectives

Heading for a recession ?
29/09/2022 • By Hélène BAUDCHON

The current unprecedented combination of shocks (inflation, health crisis, geopolitical issues, energy crisis, climate, monetary issues) is likely to overburden the Eurozone resilience and push the region into recession over the coming quarters. The deterioration in confidence surveys this summer provides an early indication of this likely outcome. However, we expect the recession to be limited in scope, in large part due to budgetary support [...]

Eco Week

The ECB moves up a gear  
05/09/2022 • By Hélène BAUDCHON

An exceptional response to exceptional circumstances. There is a high probability that the ECB will raise its policy rates by 75 basis points at its meeting on 8 September. The fact is that the ECB has little choice but to respond with extraordinary measures to the continuing surge in inflation, despite the increased risk of recession. This is putting into practice the hawkish statements of Jackson Hole and the unconditional determination displayed to maintain price stability.

Charts of the Week

Eurozone: the rise in corporate bond yields makes bank lending more attractive for non-financial corporations
31/08/2022 • By Laurent QUIGNON

In the first half of 2022, large non-financial companies in the euro area were more inclined to take out new bank loans than to issue debt securities. According to the latest data available, bond issuance remained depressed in July and August. At the beginning of 2022, the average costs of negotiable debt and business bank loans were at comparable levels (for example, 1.1% for French companies in January 2022, according to calculations by the Banque de France1) [...]

Eco Week

Credit impulse: Softer demand and tighter conditions expected
28/08/2022 • By Laurent QUIGNON

With strong acceleration since spring 2021, bank loans to private sector outstanding recorded, in June, its highest annual increase since 2009 (+6.1% year-on-year in June 2022). Annual increase and credit impulse for non-financial companies (NFC) reached levels not seen since 2006 (+6.8% and +4.9%, respectively) [...]