Thursday , November 23 2017
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Nadia Gharbi

Nadia Gharbi



Articles by Nadia Gharbi

The euro area recovery is continuing to broaden out

9 days ago

Latest growth data indicate continuation of a strong and stable recovery. Our GDP forecasts remain unchanged.Euro area headline GDP growth was confirmed at 0.6% q-o-q in Q3.At the country level, Germany surprised to the upside, posting GDP growth of 0.8% q-o-q in Q3 and beating consensus expectations. The impressive performance was driven by exports and investment in equipment and machinery. Turning to Italy, economic activity strengthened in Q3. After a rise of 0.3% q-o-q in Q2, real GDP expanded by 0.5% q-o-q in Q3, in line with consensus expectations.All in all, the good performance of most economies was further evidence that the recovery is continuing to broaden out across countries.Looking ahead, leading indicators such as PMIs remain consistent with a strong and stable expansion of

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Limited market reaction to Catalan developments

24 days ago

Markets remain sanguine ahead of Catalan elections in December, but continuing uncertainty could hurt investor sentiment.On 27 October, the Catalan parliament voted for a unilateral declaration of independence. The same day, the Spanish senate approved the terms of application of Article 155 of the constitution, allowing Madrid to impose direct rule on Catalonia. Prime Minister Mariano Rajoy called a snap election in Catalonia for 21 December, earlier than any dates that had so far been mooted, with the aim of keeping direct rule as brief as possible.The market’s reaction to the independence declaration and the central government’s response has been relatively limited, suggesting that investors believe the risks associated with Catalonia are contained for now.We do not think that, as

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A buoyant euro area labour market

27 days ago

Leading indicators point to an acceleration in already strong job creation in the quarters ahead.Recent economic crises took a heavy toll on the employment level in the euro area, with almost five years of uninterrupted employment losses. Between its pre-crisis peak in the first quarter of 2008 and the second quarter of 2013, euro area employment levels fell by 3.6%, or more than 5.5 million.However, since hitting a low point in the second quarter of 2013, euro area employment has shown continued quarter-on-quarter expansion posting a total increase of 6.8 million. The continued employment growth seen across the euro area has been stronger than expected. The gap with the pre-crisis level (2008) closed in Q1 2017 and employment is now 1% above its pre-crisis level.One development of note

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Swiss economy scores in international sports events

29 days ago

Prospects look bright for Switzerland next year- thanks in part to the manna received from important world sports events.According to SECO’s estimates, the Swiss economy contracted in the final quarter of 2016, while Q3 2016 and Q1 2017 figures were revised down. The downturn in SECO’s GDP figures was exacerbated by special effects related to the inclusion of sports events in the “Art, entertainment, recreation and other services” sector. “Art, entertainment, recreation and other services” account for 2% of Swiss real GDP. Variations in income from international sports events therefore can have an impact on growth, as the income generated by licensing goes to sporting associations like FIFA, UEFA and the International Olympic Committee, which all have their headquarters in Switzerland.The

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Little market reaction to escalating Catalan dispute

October 23, 2017

While markets have remained stoic about evolving political situation in the region, prolonged uncertainty could have an impact.The response given by the Catalan President Carles Puigdemont to the Spanish government’s ultimatum last week did not provide the clarity the central government was seeking on whether or not the Catalan parliament would formally declare independence.As a result, the central government therefore has decided to invoke Article 155 of the Spanish constitution, for the first time since Spain embraced democracy in the late 1970s. A broad set of measures awaits approval by the Spanish Senate, the upper chamber of parliament, which is scheduled to deliberate on Friday. This means the Catalan government still has time to act. For its part, the central government has

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Euro construction momentum could remain strong

October 20, 2017

The acceleration in construction activity is boosting capital expenditure and supporting the euro area’s cyclical upturn.Since the beginning of the year, euro area capital expenditure has picked up noticeably. The acceleration has been mainly driven by the construction sector (which accounts for almost 50% of total capital expenditure), while business equipment has continued to expand strongly. Construction activity is still 19% below its pre-crisis (2008) level, and has room to improve. Favourable factors such as a better economic outlook in the euro area, the ongoing recovery in the housing market, a rise in real disposable incomes, supportive ECB monetary policy and increased immigration have supported the construction sector and are likely to continue doing so in the quarters

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Suspense in Catalonia

October 16, 2017

There are increasing chances that Madrid will impose direct rule on Catalonia. A prolonged stand-off could end up depressing activity, but for now we are not revising our growth outlook for Spain.This morning, the Catalan president failed to answer clearly whether Catalonia had declared independence or not. He reiterated that he had placed last week’s unilateral declaration of independence on hold in order to open up a “two-month process” to try to reach a deal with the central executive.Spanish Prime Minister Mariano Rajoy warned that only a clear statement that Puigdemont had not declared independence would stop the Spanish authorities from moving towards activation of article 155, of the Constitution, removing power from the regional Catalonian government. The central government will

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Switzerland not far from being deemed a ‘currency manipulator’ by the US

October 6, 2017

Switzerland fulfils two of the three criteria required to be considered a currency manipulator by the US, but it is unlikely to affect the SNB’s monetary policy stance.In the next few days, the U.S Department of Treasury will publish its semi-annual report on International Economic and Exchange Rate Policies. Switzerland is one of six countries on the department’s monitoring list, as it meets two of the three conditions established by the US Treasury to be deemed a ‘currency manipulator’. The country has a current account larger than 3.0% of GDP and interventions in the foreign exchange market exceed 2% of GDP over a 12-month period.But Switzerland does not meet the third condition, running a USD13.7 billion trade surplus with the US (according to the latest data), compared with a US

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The declining link between the credit impulse and domestic demand

September 29, 2017

The latest ECB credit report confirmed that credit flows in the euro area remains strong. But reliance on bank credit is falling in Europe.The ECB’s M3 and credit report for August published this week was pretty strong overall and confirmed the ongoing improvement in lending dynamics in the euro area. Bank credit flows to the private sector (adjusted for seasonal effects and sales and securitisations) amounted to €17bn in August, lower than the July figure of €39bn. In y-o-y terms, private-sector lending increased by 2.7% in August, close to its fastest rate since 2009 and up from 2.6% in July.Taking those numbers into account, our credit impulse (see Chart), a three-month rolling sum of private-sector credit flows as a percentage of GDP, remained positive in August, but was still

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Business surveys show strong end to Q3 in euro area

September 22, 2017

Better-than-expected Flash PMI numbers in September mean that the quarter is ending on a strong note, with some upside risks ahead.Flash PMI surveys for the euro area ended the third quarter on a strong note. The composite flash PMI increased to 56.7 in September from 55.7 in August against consensus expectations for a stable print (55.6).The breakdown by sub-indices showed pretty strong signals in most forward-looking components, with the sole weak spot manufacturing new export orders. Importantly, Markit mentioned that the survey showed some signs of capacity being stretched.At 56.0 on average in Q3, the composite PMI is consistent with GDP growth of 0.62% quarter-on-quarter in Q3, cooling down from what business surveys suggest was the level in Q2 (0.70% q-o-q). Even after the latest

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Euro area, revisiting the past once again

September 22, 2017

GDP figures have been considerably revised in the euro area and in Switzerland in the wake of Q2 data, leading to mechanical changes in our growth forecasts for this year.Revisions to GDP figures have been massive in the euro area and in Switzerland following the publication of Q2 GDP data. The resultant changes in our forecasts are mechanical, and do not reflect a change in our growth profile for H2 2017 and beyond.Recent data released by Eurostat have resulted in a further upward revision in GDP figures, mechanically pushing up our own 2017 GDP forecast for the euro area from 1.9% to 2.1%. The revisions also have a slight impact on our 2018 growth forecast, which has been raised from 1.6% to 1.7%.In Switzerland, real GDP growth in Q2 was below both our and consensus forecasts. In

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The SNB still in wait-and-see mode

September 5, 2017

The SNB is unlikely to pre-empt the ECB in normalising monetary policy. We are keeping our baseline scenario unchanged and expect the interest on sight deposit to stay at -0.75%.The SNB’s 14 September meeting could be one of the most interesting in a while, as it comes just after a period when the Swiss franc has witnessed significant depreciation, mainly against the euro.The key focus of the SNB’s September 14 meeting will be its assessment of exchange rate moves. We do not expect the SNB to remove previous references to the “overvalued” currency or to its commitment to intervene in the foreign exchange market if needed. However, the SNB could also note its satisfaction with the direction the exchange rate has taken of late. We expect the SNB to keep the interest rate on sight deposits

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Business survey points to continued euro area strength

August 23, 2017

Flash PMI suggests GDP growth may cool slightly in the third quarter, but dynamics of the euro area economy remain strong and broadly stable.Markit’s composite flash purchasing managers index (PMI) for the euro area remained broadly stable at 55.8 in August, slightly above consensus expectations (55.5). By sector, the manufacturing PMI increased to 57.4, from 56.6 in July, offsetting a decline in the services PMI (-0.5 points to 54.9).The euro area composite PMI is now consistent with GDP growth of 0.59% q-o-q in Q3, cooling down from what business surveys suggest was the level in the last quarter.PMI surveys have tended to overestimate GDP growth of late, but even so, economic activity remains strong in the euro area. With this in mind, we are keeping unchanged our GDP growth forecast of

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France & Spain : Strong Q2 GDP growth performance

July 28, 2017

The latest Q2 GDP figures published by France and Spain point to solid growth for the euro area. We maintain our euro area GDP growth forecast at 1.9% for 2017 as a whole.France and Spain today were the first big countries in the euro area to publish GDP growth figures for Q2 2017. French real GDP rose by 0.5% q-o-q in Q2 2017, the same pace as the two previous quarters. The details showed that domestic demand remained solid, while the sharp improvement in net exports offset the fall in inventories.In Spain, GDP increased by 0.9% q-o-q in Q2, its fastest pace of expansion in almost two years. Symbolically, Spanish real GDP now exceeds its pre-crisis level (2008) for the first time. Today’s quarterly growth was above our forecast which mechanically pushes up our yearly GDP forecast for

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Euro area : Momentum slows at the start of Q3

July 24, 2017

PMI surveys for the euro area eased somewhat in July, suggesting that momentum slowed at the start of Q3. We maintain our GDP growth forecast of 1.9% for 2017.The composite flash PMI fell to 55.8 in July from 56.4 in May, below consensus expectations (56.2). The headline dip was entirely driven by the manufacturing index, which fell to 56.8 in July from 57.4 in June. By contrast, the services index remained stable at 55.4. The PMI’s forward-looking components remained pretty strong, despite edging down in July. The bright spots came from new export orders and employment.Composite PMIs declined in Germany and France, while activity was pretty strong elsewhere, in particular in periphery countries. Markit mentioned that growth perked up, registering the second largest monthly rise in output

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Euro area: Bank credit standards eased slighlty in Q2

July 18, 2017

The latest Bank Lending Survey from the ECB showed that credit standards for loans to enterprises eased slightly in net terms in Q2. Our GDP growth forecast for the euro area remains unchanged. The July Bank Lending Survey (BLS), released by the ECB today, showed that bank credit standards for loans to enterprises eased slightly in Q2 2017, following a net easing in the previous quarter. This came despite expectations in the previous survey round that these standards would tighten slightly.Competitive pressure remained the main factor explaining the loosening. Looking ahead, banks expect a net easing of credit standards in Q3 for loans to enterprises and loans to households.Demand for credit continued to rise, albeit at a slower pace than in the previous quarter for households.The BLS is

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EA: Bank credit flows rose again in May

June 28, 2017

Euro area M3 and credit flows for May were pretty strong overall. Our GDP growth forecast remains unchanged for the euro area.Euro area credit flows to non-financial corporations increased again in May, by EUR10 bn in adjusted terms, following a gain of EUR11 bn in April.Broad money growth (M3) rose marginally from 4.9% to 5.0% y-o-y. Bank lending growth to the private sector was broadly unchanged at 2.6% y-o-y, in line with leading indicators.Overall, we are keeping unchanged our GDP growth forecast for the euro area at 1.9% for 2017 as a whole. We continue to see a number of headwinds that could lead to a modest slowdown in the pace of economic expansion, which should nonetheless remain comfortably above potential this year, at around 1.75% in annualised terms.Read full report here

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Euro PMIs show business activity remains solid

June 23, 2017

Euro area PMI indices showed some signs of moderation in June, but suggest that there is still plenty of growth momentum.PMI indices showed some signs of moderation in June. The composite PMI decreased from 56.8 in May to 55.7 in June, below consensus expectations (56.6).The PMI’s forward-looking components remained pretty strong in June, with some bright spots in new orders and employment.On average, composite PMI in Q2 was the highest in six years and points to GDP growth of 0.68% q-o-q, after 0.60% in Q1.Soft data continue to be more upbeat than hard data, but the divergence has slightly narrowed. We are keeping unchanged our GDP growth forecast at 1.9% for 2017 as a whole. We continue to see a number of headwinds leading to a modest slowdown in the pace of economic expansion, which

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Swiss National Bank in wait-and-see mode

June 15, 2017

The SNB is unlikely to pre-empt the European Central Bank in hiking rates. Currency intervention will remain the SNB’s policy tool of choice in the case of renewed strengthening of the Swiss franc.At its June meeting, the Swiss National Bank (SNB) left its accommodative monetary policy unchanged. The interest rate on sight deposits was maintained at a record low of -0.75% and the SNB reiterated its willingness to intervene in the foreign exchange market if needed. Our baseline scenario remains unchanged. We expect the interest on sight deposits at the SNB to stay at its current level of -0.75% throughout 2017.Looking ahead, we continue to believe that the SNB is unlikely to pre-empt the ECB in normalizsng monetary policy, which remains the key variable to watch. Based on our expectations

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France & Spain: Q1 GDP growth

April 28, 2017

Available data point towards 0.5% GDP growth in the euro area in the first quarter.France and Spain today became the first big countries in the euro area to publish GDP growth figures for Q1. French real GDP expanded by 0.3% q-o-q in Q1 2017, down from +0.5% q-o-q in Q4, and lower than what was expected by the consensus.The details were more encouraging than the headline figure. In particular, investment accelerated sharply. Some of the weaknesses in private consumption were explained by temporary factors.Meanwhile, Spanish real GDP expanded by 0.8% q-o-q in Q1, marking an acceleration over the previous quarter.Overall, Euro area GDP (to be published on May 3) is likely to come in at 0.5% q-o-q in Q1, in between estimates based on available soft and hard data.

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Latest PMI numbers tilt growth forecast upwards

April 21, 2017

Strong Flash PMI surveys for April indicate that output growth is accelerating in the euro area.Euro area PMI surveys surprised to the upside in April. The composite flash PMI surged to 56.7 in April from 56.4 in March, above consensus expectations (56.4). Overall, April’s composite PMI is consistent with euro area GDP growth of 0.7% quarter over quarter (q-o-q) in Q2, up from 0.6% in Q1 and higher than our forecasts. Other national surveys and hard data have been more mixed, suggesting that PMI surveys might be overstating the pace of growth to some extent. However, all in all, risks to our 2017 euro area GDP growth forecast of 1.5% are tilted to the upside.The rise in PMI data was broadly based across sectors. Manufacturing PMI rose to 56.8 from 56.2 in March, while the PMI for the services sector increased marginally to 56.2, from 56.0. The breakdown by sub-indices was rather encouraging with most forward-looking components pointing up. Job creation continued its upward trend, boosted by buoyant demand and widespread optimism regarding future activity.At a country level, German composite PMI for April fell from 57.1 in March to 56.3 in April. The decline was mainly driven by the services sector, while manufacturing PMI remained broadly stable. But German PMI is above its Q1 average, which suggests that economic activity in Germany remains pretty strong in Q2.

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No hint of Swiss rate rise

March 16, 2017

The Swiss National Bank left monetary policy unchanged at its latest meeting and forecast that the Swiss economy would grow 1.5% in 2017.At its latest policy meeting on 16 March, the Swiss National Bank (SNB) left the interest rate on sight deposits at a record low of -0.75% and the central bank reiterated its willingness to intervene in the foreign exchange market if needed, “taking the overall currency situation into consideration”, as it had mentioned in its previous press release. The SNB revised slightly up its inflation forecast for 2017 from 0.1% to 0.3% and foresees inflation of 0.4% and 1.1% for 2018 and 2019, respectively. The central bank remains “cautiously optimistic” for 2017 growth outlook, maintaining its forecast for the Swiss economy to grow by 1.5% in 2017.Our baseline scenario is for the interest rate on sight deposits with the SNB to stay at -0.75% in 2017, with a first rate hike coming in March 2018. FX interventions are likely to remain the policy tool of choice to counter any appreciation of the Swiss franc.Our main argument for this forecast is that the SNB is unlikely to pre-empt the ECB in normalising monetary policy. The ECB will most likely announce a tapering of asset purchases starting in Q1 2018. Moreover, the SNB might be keen to keep the current interest rate differential or even let the differential widen more.

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Switzerland: modest recovery remains on track

March 2, 2017

GDP growth picked up in 2016, with the export-orientated manufacturing sector contributing positively in spite of the strong franc. We expect the Swiss growth rate to be broadly similar this year.The Swiss statistical agency (SECO)’s quarterly estimates show a provisional GDP growth rate of 1.3% in 2016 compared with 0.8% in 2015.Two aspects of today’s report are worth mentioning. First, on the expenditure side, both domestic demand components and foreign trade helped to boost Swiss growth in 2016. It was a much better year for exports than 2015, even though the good performance hid significant divergence across sectors. Second, on the production side, the largely export-oriented manufacturing sector, hit hard by the sharp appreciation of the Swiss franc the previous year (the so-called “Frankenshock”), was the main driver of GDP growth in 2016.Switzerland still lags the US and the euro area in terms of GDP growth, but today’s data confirm that the Swiss economy is continuing its modest recovery in spite of the Frankenshock. For 2017, we expect real GDP growth of 1.4%, broadly the same as in 2016. Domestic demand is likely to remain an important economic driver. Private consumption is expected to continue to grow, but with no significant acceleration given the fading effect from lower energy prices and residual challenges in the labour market. Investment prospects are mixed.

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Euro area: latest figures raise our 2017 GDP forecast to 1.5%

January 31, 2017

Growth in the euro area outstripped growth in the US last year, while the latest indicators suggest 2017 has gotten off to a strong start. Our GDP forecasts are pushed up mechanically. Euro area real GDP expanded by 0.5% q-o-q in the fourth quarter, marking an acceleration from Q3’s 0.4% gain. The euro area economy grew at an annual average of 1.7% in 2016, compared with 1.9% in 2015. Last year was the first time since 2008 that real GDP growth in the euro area was above that of the US.Today’s GDP report mechanically pushes up our GDP forecast for 2017 from 1.3% to 1.5%. But it is worth mentioning that this does not change our central scenario for the euro area this year, as we are keeping unchanged our forecast for the pace of growth for the rest of the year.As for 2017, the first set of euro area sentiment indicators together with hard data point to a pretty strong first quarter. In particular, January’s composite purchasing manager index from Markit was consistent with GDP growth of 0.5% q-o-q in Q1. The European Commission business indicator also rose strongly in January.Overall, today’s GDP report, including revisions, mechanically pushes up our GDP forecast for 2017 from 1.3% to 1.5%. It is worth mentioning that it does not change our central scenario for the euro area, as we have kept unchanged our forecast for the pace of growth for the rest of the year.

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First tightening of euro area credit standards in three years

January 17, 2017

The latest Bank Lending Survey (BLS) from the ECB, showed that credit standards tightened somewhat in Q4 2016. But the details were much more upbeat than the headline reading.Credit standards on loans to euro area enterprises tightened in Q4 2016 for the first time in three years. The move was essentially driven by developments in the Netherlands. Demand for credit continued to rise across all categories of loans, once again driven by generally low interest rates and M&A activity.Looking ahead, banks expect a net easing of credit standards across all loan categories in Q1 2017.The main takeaway from the Q4 Bank Lending Survey (BLS) report is that the ECB’s expansionary monetary policy is likely to be maintained throughout this year. Given that the BLS is signalling more modest gains in credit flows in the next few months than previously, the risk is that the ECB might need to do more.

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The ‘Frankenshock’, two years on

January 16, 2017

The Swiss economy has proved more resilient than expected to the sudden appreciation of the Swiss franc in January 2015, but negative deposit rates could remain in place through 2017.On 15 January 2015, the Swiss National Bank (SNB) decided to discontinue the minimum exchange rate of CHF1.20 per euro introduced in September 2011. The SNB’s announcement came as a shock for the Swiss economy, and resulted in a sharp appreciation of the Swiss franc. But two years later, the Swiss economy has proven to be more resilient than expected: recession has been avoided and inflation is gradually rising. In summary:Swiss real GDP grew by 0.8% in 2015, may have grown by 1.5% in 2016, and could grow by 1.4% in 2017. Domestic demand has been robust. Exports of goods have performed better than expected, mainly due to the chemical and pharmaceutical industries.The unemployment rate has remained pretty steady, rising from just 3.1% to 3.3%.The franc has strengthened against the euro by 12%, but has remained pretty stable against the US dollar.Swiss headline inflation has remained in negative territory, mainly due to the drop in commodity prices and the sharp appreciation of the franc. But headline inflation is expected to turn positive in 2017 for the first time in five years, averaging 0.4%.

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Euro area headline inflation rises at fastest pace since September 2013

January 4, 2017

Nonetheless, the acceleration in headline figures in December masks subdued core inflation. We believe weak core prices will mean the rise in headline inflation will soon stall.Euro area flash HICP inflation rose from 0.6% in November to 1.1% year on year (y-o-y) in December, while core inflation increased slightly to 0.9%, both above consensus expectations. The breakdown by components showed that the main driver of the increase was energy prices.In the next few months, euro area inflation is likely to move higher, driven by energy-base effects. Headline HICP will peak at close to 1.5% y-o-y by the end of Q1 2017 according to our forecasts, using market expectations for oil prices and the currency. We then think price rises will stabilise as core inflation (excluding food and energy) is unlikely to rise significantly above 1% this year. Our 2017 forecasts remain unchanged at an average of 1.3% and 1.1% for headline and core inflation respectively, with risks modestly tilted to the upside in the short term.Overall, despite the sharp rise in headline inflation, the ECB is unlikely to reconsider its monetary policy support as core inflation remains extremely subdued. The latest rise in prices appears in line with its expectations for headline inflation to increase sharply in the early months of 2017 due to energy base effects.

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Referendum at heart of Italian uncertainties

November 14, 2016

A ‘No’ vote in the 4 December referendum would be seen as a negative by investors in Italy, adding to the challenges the country must face.The 4 December referendum on senate reform is the next big event on the European political calendar, coming just ahead of the next ECB and Fed policy meetings on 8 December and 14 December, respectively.We believe a ‘Yes’ vote would boost government confidence and marginally help Italian securities, but is unlikely to represent a significant game changer for Italy and for the euro zone as a whole. By contrast, a ‘No’ vote would add to the current political uncertainty and could hurt an already fragile and modest recovery.Italian sovereign bonds have come under increasing stress. The spread between 10-year Italian government bonds and their Spanish equivalents is now close to their highest level since 2011. Should the referendum be rejected, spreads are likely to widen even more. However, the ECB could be expected to provide a sufficient backstop to avoid any stress spiralling into a systemic crisis. Moreover, Italy benefits from a relatively stable base of domestic investors.There is also the risk that Italy’s sovereign debt rating will be downgraded (both DBRS and Fitch have their ratings of Italy’s debt on negative outlook).

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Euro area GDP growth in line with expectations

October 31, 2016

3Q GDP growth in the euro area met expectations. The play off between strong business indicators and weak-ish credit dynamics means we maintain our full-year growth forecast of 1.5% in 2016.Euro area real GDP expanded at a quarter-on-quarter (q-o-q) rate of 0.3% in Q2 (1.4% q-o-q annualised, 1.6% year on year), in line with expectations and our own forecast. This comes after GDP growth of 0.3% q-o-q in Q2 and 0.5% q-o-q in Q1.Looking ahead, risks to our scenario for the euro area economy seem to be broadly balanced, if not tilted to the upside in the short term. On the positive side, euro area sentiment indicators have been coming in above expectations. In particular, Markit’s composite purchasing manager index for October was consistent with a GDP growth figure of 0.4-0.5% q-o-q in Q4 , which is above our own forecast. The European Commission business indicator rose strongly in October, well above expectations. In Germany, the October IFO survey of business sentiment reached its highest level since April 2014.On the negative side, credit data have been disappointing. Our measure of the credit impulse in the euro area has weakened significantly, suggesting that domestic demand is at risk of slowing down in the coming quarters. Of itself, this poses some downside risk to our GDP forecasts.

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Euro area business surveys point to strong start to Q4

October 25, 2016

Markit Flash PMI surveys for October were above consensus and there was a considerable improvement in sentiment in Germany, possibly pointing to stronger Q4 GDP figures.

Euro area business surveys just released show a solid start to the fourth quarter. More importantly still, these forward-looking indicators suggested that growth is likely to gain momentum in the months ahead, in particular in Germany. The good performance of the German manufacturing sector suggests that external demand might be less a drag than in previous quarters, with respondents to the survey mentioning strengthening demand from Asia and the US.According to Markit’s preliminary estimates, the euro area composite purchasing managers’ index (PMI) increased from 52.6 in September to 53.7 in October, much stronger than expected by consensus. This reading was the highest since December 2015. The October composite PMI surveys are consistent with a euro area GDP growth rate of about 0.4% quarter on quarter in Q4, slightly above our forecast of 0.3%. At this stage, we are maintaining our full-year euro area GDP growth forecasts of 1.5% for 2016 and 1.3% for 2017.Meanwhile, inflationary pressures in the euro area are showing signs of picking up, with both output and input prices surging in October. Our price-pressure index strengthened for the eighth month in a row, reaching its highest level since July 2015.

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