Markets have been pricing in an early lift-off of the ECB’s deposit rate. The ECB argues that, considering its inflation outlook, this is not warranted. This difference in view could reflect a loss of central bank credibility. More likely is that market participants and the ECB disagree on the inflation outlook. Another explanation is that investors focus on the distribution of possible inflation outcomes and are concerned about the risks of inflation surprising to the upside.
The global manufacturing PMI was up slightly in October despite a weakening in the US and a small decline in the eurozone. There was a noticeable decline in France whereas Italy moved higher. Japan also saw an improvement. The levels in the advanced economies remain very high whereas in the emerging countries the picture is more mixed. Worth noting is the improvement in India and the jump in Indonesia and Vietnam.
The German economy further recovered in the third quarter, as GDP strengthened by 1.8% from the preceding quarter. Growth is mainly driven by higher consumer spending related to improved labour market conditions and a further relaxation of sanitary measures. However, our Pulse chart indicates that this favourable environment is unlikely to last: the situation in the three months to October (blue area) worsened compared to the situation in the preceding three-month period (area within the broken line).
The initial estimate of French growth in Q3 2021 surprised on the upside, with a rebound in GDP of 3% q/q, well ahead of our forecast (2.2%) as well as those of Banque de France (2.3%) and INSEE (2.7%). Furthermore, Q2 growth has been revised upwards by 0.2 points to 1.3%. One quarter ahead of schedule, France’s GDP is therefore almost back to its pre-crisis level of Q4 2019. Besides, the growth carry-over reaches 6.6%. Hence, on average over 2021, growth will be much stronger than expected (government forecast of 6.25% and our forecast of 6.3%).
Having been in decline for around two months, the number of Covid-19 cases is rising worldwide. Three million new cases were reported between 27 October and 2 November, up 3.2% relative to the previous week. This concerns all parts of the world an in particular Europe, where the number of cases is climbing fast (+11.8%) (Chart 1): 1.54 million new cases out of a global total of 3 million have been recorded in Europe (51% of the total). The biggest number of new cases has been in Russia (281,042), while the UK has reported a total of 275,078, Ukraine 153,353, Germany 134,891 and Romania 73,463.
