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European Data Response

Euro-zone Final HICP (July)

Final inflation data for July underline that price pressures remain strong and broad-based. With wholesale natural gas and electricity prices having surged again in the weeks since July, retail gas and electricity prices are set to rise steeply in the coming months, keeping the headline rate high.

18 August 2022

European Data Response

Euro-zone GDP & Employment (Q2)

The chunky rise in euro-zone GDP in Q2 reflected the re-opening of the services sector and was accompanied by a further increase in employment. But a combination of high inflation, rising interest rates and the energy crisis will push the economy into recession before the end of this year. Europe Drop-In (18th Aug.): Winter is coming to the European economy – but how harsh will it get? Join this special briefing on the economic impact of Russia’s gas supply threat. Register now.  

17 August 2022

European Data Response

German ZEW Survey (August)

The ZEW survey fell again in August and is at a level consistent with the economy contracting. We now think a recession is unavoidable in the second half of this year as the impact of high energy prices on both households and industry takes effect. Europe Drop-In (18th Aug.): Winter is coming to the European economy – but how harsh will it get? Join this special briefing on the economic impact of Russia’s gas supply threat. Register now.  

16 August 2022

Key Forecasts

Main Economic & Market Forecasts

%q/q(%y/y) unless stated

Latest

Q1 2022

Q2 2022

Q3 2022

Q4 2022

2021

2022

2023

2024

GDP

+0.7(+4.0)

+0.5(+5.4)

+0.7(+4.0)

0.0(+1.6)

-0.2(+1.0)

+5.3

+3.0

+0.5

+1.8

Household Spending

-0.7(+7.5)

-0.7(+7.5)

+0.8(+4.4)

+0.2(+0.1)

-0.3(0.0)

+3.6

+2.9

+0.3

+1.7

HICP (%y/y)*

+8.9 (Jul.)

+6.2

+8.0

+9.1

+8.5

+2.6

+8.0

+4.0

+2.0

Unemployment Rate (%)

6.6 (Jun.)

6.8

6.8

6.9

6.8

7.7

6.8

6.8

6.6

Depo Rate, end period (%)

0.00

-0.50

-0.50

+0.50

+1.25

-0.50

+1.25

+2.00

+1.50

10yr Bund Yield, end period (%)

+1.01

+0.55

+1.39

+1.18

+1.50

-0.18

+1.50

+1.25

+1.25

$/euro, end period

1.03

1.11

1.05

1.02

1.00

1.14

1.00

1.10

1.15

£/euro, end period

0.85

0.84

0.86

0.85

0.85

0.84

0.85

0.88

0.88

Sources: Bloomberg, Capital Economics; *year averages


Energy crisis hotting up

European Economics Weekly

30 November 2022

Our view

The euro-zone looks set to fall into recession as high inflation and low confidence knock consumption, uncertainty weighs on investment and weaker foreign demand reduces export growth. Further increases in core and food inflation look set to drive the headline rate close to 9%, and we expect core inflation to remain well above 2% for the next couple of years. We expect the ECB’s rate hiking cycle, which will begin this month, to see the deposit rate rise to +1.25% by the end of this year and +2.0% by mid-2023. The ECB will need to introduce a credible spread-fighting tool to keep bond markets calm as it tightens monetary policy.

Latest Outlook

European Economic Outlook

Recession won’t stop aggressive ECB tightening

The euro-zone looks on course to fall into a mild recession in the coming quarters. Real incomes are falling, business sentiment has plummeted and growth in the region’s export markets is slowing. Nevertheless, the labour market is likely to remain tight and wage growth should accelerate, causing inflation to remain above target over the coming years. As a result, we expect the ECB to press ahead with an aggressive tightening cycle over the next 12 months, pushing interest rates above their neutral levels temporarily. The Bank will also implement a new spread-fighting tool, and we think there’s a good chance that it will have to restart its net asset purchases at some point in the coming year or so. ECB Preview (19th July, 10:00 ET/15:00 BST): Our Europe team will be briefing on what to expect from the ECB ahead of its crunch July meeting. They’ll be talking about lift-off for rate hikes, what a weak euro means for policy`, the Transmission Protection Mechanism and much more. Register now.

14 July 2022