Author Archive

Europe chart of the week – Italy’s fiscal buffers

The M5S-League coalition has committed to a significant degree of fiscal easing and to the reversal of some structural reforms. Such policies will put Italy on course for confrontation with Brussels over deficit reduction targets, although at this stage we still expect negotiations to result in compromises. For all the political and economic risks facing […]

Europe chart of the week – Corporate Sector Soft Patch

Next week’s detailed breakdown of ECB QE monthly data will reveal a marked slowdown in the pace of corporate bond purchases in April (Corporate Sector Purchase Programme, or CSPP). Indeed, weekly holdings data have been consistent with gross purchases of around EUR3bn in April, down from EUR5.8bn on average in Q1. There are several possible […]

Europe chart of the week – public debt

This week’s Eurostat releases revealed that public finances continue to improve in most euro area member states. As a result of falling deficits, low interest rates and stronger nominal growth, the ratio of euro area government debt to GDP fell to a six-year low of 86.7% in Q4 2017. Although sovereign debt sustainability remains shaky […]

The ECB’s steady hand

Another ECB meeting, another balanced message of confidence and prudence. Unsurprisingly, the statement today mentioned the deterioration in the data flow since March, but our impression is that the ECB is largely brushing off concerns about a soft patch in the economy for the moment. ECB president Mario Draghi said that the Governing Council did […]

Euro area core inflation to rise again after Easter

The ECB’s Governing Council may have to wait a little longer to get a clearer view of where euro area core inflation is heading in the near term. The early timing of Easter this year has made travel-related services prices more volatile. Another reason is that an unexpected drop in core goods inflation has fuelled […]

ECB policy: Stop Worrying and Love the Soft Patch

We see little incentive for the ECB to change its broad assessment of the economic situation at the 26 April meeting. The normalisation of the monetary stance will continue to be dictated by the ECB’s guiding principles of confidence, patience, persistence, prudence and gradualism. Talk is cheap, and Mario Draghi could still put more emphasis […]

Larger-than-expected reduction in French public deficit

France’s public deficit fell to 2.6% of GDP in 2017 according to INSEE’s preliminary assessment, down from 3.4% in 2016 and below the 3% threshold for the first time since 2007. The outcome was better than the government’s estimate of a 2.9% deficit. If confirmed, France will exit the Excessive Deficit Procedure that the European […]

Europe chart of the week – monetary policy

Much of recent ECB dovish rhetoric has been building around the (not-so-new) idea that potential growth might be higher than previously thought, implying a larger output gap and lower inflationary pressure, all else equal. The argument is both market-friendly and politically welcome – what we are seeing is the early effects of those painful structural […]

Euro area Flash PMIs: “Growing pains” but no reason to panic

Euro area flash PMI indices fell sharply in March, below consensus expectations for the second month in a row. However, details were still largely consistent with a robust, broad-based economic expansion this year, if only at a slightly slower pace than last year. We forecast euro area GDP to expand by 2.3% in 2018. The […]

ECB begins to rotate forward guidance

The ECB made one small change to its communication in March consistent with a normalisation process that is likely to remain very gradual. In line with our expectations, today the Governing Council (unanimously) decided to drop its commitment to increase asset purchases “in terms of size and/or duration” if needed, which had steadily become more […]

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