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Nadia Gharbi

Nadia Gharbi

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Articles by Nadia Gharbi

Europe chart of the week – Italian productivity

6 days ago

With less than 30 days to go, the Italian general election remains highly unpredictable. The new electoral system and the fact that 37% of seats are to be allocated on a ‘first-past-the-post’ system make projecting seats from voting intentions particularly hard.
Importantly, Italy is going into this election with an economy that is performing relatively strongly relative to recent history. However, cyclical strength is masking structural weaknesses. Over the past few years, Italy has endeavoured to address certain these weaknesses, but some reforms have not gone as far as necessary. Labour productivity remains a problem : while the other big euro area economies have seen 1% annual average productivity growth since

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Switzerland: inflation edged lower in January

7 days ago

According to the Swiss Federal Statistical Office (FSO), the headline consumer price index (CPI) inflation eased to 0.7% y-o-y in January from 0.8% y-o-y in December, in line with consensus and our own expectations. Core inflation (CPI excluding food, beverages, tobacco, seasonal products, energy and fuels) also eased, from 0.7 % y-o-y in December to 0.5% y-o-y in January (see Chart 1), back to the level of October 2017.
The FSO report showed that inflation for imported goods and services slowed down in January (to 2.0% y-o-y from 2.4% y-o-y in December) mainly due to the weaker franc and energy base effect. Meanwhile, inflation for domestic goods and services remained stable at 0.3% y-o-y in January.

Swiss

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Switzerland: inflation edged lower in January

8 days ago

Core inflation fell back to the same level as last October. Our scenario for monetary policy remains unchanged.Headline consumer price index (CPI) inflation eased to 0.7% y-o-y in January from 0.8% y-o-y in December, in line with consensus and our own expectations. Core inflation fell from 0.7% y-o-y in December to 0.5% y-o-y in January.Our inflation outlook remains unchanged. We expect headline inflation to firm up gradually as 2018 progresses, averaging 1.0% in 2018, but with risks tilted to the downside.Given the outlook for inflation is still contained, the Swiss National Bank is likely to remain cautious and true to its current ‘two-pillar’ strategy. Our best guess is that there will be a first rate hike of 25bp in December 2018.Read full report here

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Europe chart of the week – Italian productivity

11 days ago

Among the main challenges facing Italy, stagnant labour productivity is one of the most important.With less than 30 days to go, the Italian general election remains highly unpredictable. The new electoral system and the fact that 37% of seats are to be allocated on a ‘first-past-the-post’ system make projecting seats from voting intentions particularly hard.Importantly, Italy is going into this election with an economy that is performing relatively strongly relative to recent history. However, cyclical strength is masking structural weaknesses. Over the past few years, Italy has endeavoured to address certain weaknesses, but some reforms have not gone as far as necessary. Labour productivity remains a problem: while the other big euro area economies have seen 1% annual average

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When will the SNB start the process of policy normalisation?

18 days ago

When the Swiss National Bank (SNB) scrapped its currency floor three years ago, its monetary policy strategy was clear: to fight Swiss franc appreciation. It did so verbally, by calling the currency “significantly overvalued”, and physically, by implementing a negative interest rate and intervening in the foreign exchange market as necessary.
Three years on, the interest rate on sight deposits at the SNB remains unchanged at a record low of – 0.75%. What’s more, over this time the SNB  has intervened in the FX market by spending CHF 86 billion on foreign currency assets in 2015, another CHF 67 billion in 2016 and an estimated (based on the weekly variation of deposits at the SNB) CHF 44 billion in 2017. The only

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When will the SNB start the process of policy normalisation?

20 days ago

The SNB may soon start to normalise its monetary policy. We expect a first rate hike of 25bp in December 2018.There are several reasons to believe that the SNB may soon start to normalise its monetary policy. First, the Swiss macroeconomic outlook has improved: Swiss growth is picking up and becoming broader-based across a range of sectors, while inflation is also gradually rising. Second, the Swiss franc has weakened and the pressure on the currency has become somewhat softer. Third, other central banks (in particular the Fed and the ECB) are gradually removing some of their own stimulus. The key question is when and how the SNB will normalise?A change of communication regarding future monetary policy is likely during H2 2018 as the SNB will want to wait for sure signs that the European

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Euro area: Business activity expanding at its fastest pace in nearly 12 years

27 days ago

The flash composite Purchasing Managers’ index for the euro area increased to 58.6 in January from 58.1 in December, above consensus expectations (57.9).  The services sector index rose, offsetting the decline in the manufacturing index . Companies also expressed growing optimism about this year’s outlook, with business expectations up to an eight-month high.
The only piece of less positive news was a modest drop in forward-leading indicators in the manufacturing sector, consistent with our forecast of a gradual slowdown in the pace of growth in the second half of 2018. Still, January PMIs confirm that growth is improving in terms of quantity as well as quality, with rising job creation and investment. We forecast

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Italy back in the spotlight

January 18, 2018

Italian elections are the next big political challenge facing the euro area. While near-term risks seem contained, medium-term ones remain.The Italian government confirmed 4 March as the date for the next parliamentary elections. The lower and upper houses will be elected under a new electoral law, but a hung parliament is the likely initial outcome of the elections given the fragmented political landscape in Italy.However, we do not think that, as things stand, political uncertainty will lead to systemic crisis. The Italian economy has gained momentum since Q4 2016. Domestic household demand has led the pick-up in growth, whereas corporate investment has improved only very recently. The cyclical recovery is expected to continue in the near term: we forecast that Italian real GDP will

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A crucial start to the year for Catalonia

January 11, 2018

Spain, like Europe, continues to take political tensions in the region in its stride, but prolonged uncertainty could have an impact on the economy.Following the December regional elections, in which pro-independence parties won a majority of parliamentary seats, the main challenge in Catalonia will be the formation of a new coalition government. Catalan parties have until end March/early April to reach an agreement on the next regional president, failing which repeat elections may need to be called.This week, pro-independence parties agreed a deal to try to re-elect Carles Puigdemont as the region’s president (Puigdemont fled abroad just before the December elections to avoid arrest). However, it is still unclear how this deal will work in practice.Muted market reaction to the latest

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Switzerland: Inflation at a seven-year high

January 10, 2018

According to the Swiss Federal Statistical Office (FSO), consumer prices in Switzerland remained broadly stable at 0.8% y-o-y in December, in line with consensus expectations, meaning that Swiss inflation stayed at its highest rate in almost seven years at the end of 2017. Core inflation (headline CPI excluding food, beverages, tobacco, seasonal products, energy and fuels) rose slightly from 0.6% y-o-y in November to 0.7% y-o-y in December. This was the highest rate since August 2009. The breakdown showed that there was no sign of growing domes tic inflationary pressures. In particular, services inflation fell for a second successive month by 0.1pp to 0.5% y-o-y.
Average annual inflation reached 0.5% in 2017, in

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Switzerland: Inflation at a seven-year high

January 8, 2018

Swiss inflation remained at its highest rate in almost seven years in December. We expect average headline inflation to continue to move higher in 2018.According to the Swiss Federal Statistical Office (FSO), consumer prices in Switzerland remained broadly stable at 0.8% year on year (y-o-y) in December, in line with consensus expectations. Core inflation (headline CPI excluding food, beverages, tobacco, seasonal products, energy and fuels) increased slightly to 0.7% y-o-y in December.In all, average annual inflation reached 0.5% in 2017, after -0.4% in 2016 and -1.1% in 2015. This was the first year of positive average inflation since 2011.We expect average headline inflation of 1.0% in 2018 after 0.5% in 2017. However, our inflation forecast for this year is tilted to the down side

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Chinese demand leads the Swiss watch industry’s recovery

December 28, 2017

The most important driver of the Swiss watch industry’s recovery has been the revival of the mainland China market.
After years of impressive growth, the Swiss watch industry faced difficult conditions in 2015 and 2016, when exports declined by 3.2% and 9.9% respectively in value terms. The last time that there were two consecutive years of decline was in 1995-96. The appreciation of the Swiss franc, the collapse of the top market Hong Kong due to the sudden disappearance of Chinese tourists and the anti-corruption campaign by the Chinese government were all factors behind the drop.
Each month the Federation of the Swiss Watch Industry issues global watch exports sales data. Its latest report was published today and

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Increasingly optimistic on Swiss outlook

December 22, 2017

At its December meeting, the Swiss National Bank (SNB) left its accommodative monetary policy unchanged. More specifically, the SNB maintained the target range for the three-month Libor at between – 1.25% and-0.25% and the interest rate on sight deposits at a record low of – 0.75%. The SNB also reiterated its commitment to intervene in the foreign exchange market if needed, taking into account the “overall currency situation”. The central bank’s assessment of the Swiss franc remained unchanged from its previous meeting in September, stating that it continued to see the Swiss Franc as “highly valued” and the situation on foreign exchange markets as still fragile.
The SNB published an update of its forecasts for

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Euro area: The sky is the limit

December 20, 2017

Momentum in the euro area picked up further at the end of the year. The flash composite purchasing managers’ index (PMI) increased to 58.0 in December, from 57.5 in November, above consensus expectations (57.2). The improvement was once again broad-based across sectors. Both the manufacturing (+0.5 to 60.6) and services (+0.3 to 56.5) indices improved in December, with the former reaching its highest level since the series began in 1997. The breakdown by sub-indices was pretty strong, with new orders and output rising strongly across both sectors. Job creation stayed at the highest for just over 17 years. However,there were continued reports of capacity constraints. Average delivery times lengthened to an extent

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Euro area: The sky is the limit

December 14, 2017

The latest flash purchasing managers index surveys showed robust momentum for the euro area. We maintain our GDP growth forecast of 2.3% for 2017.Flash purchasing managers’ indices (PMIs) for the euro area ended the year on a strong note. The composite PMI increased to 58.0 in December, from 57.5 in November, above consensus expectations (57.2).The robust momentum was led by a booming manufacturing sector, while services sentiment also improved.The breakdown by sub-indices was pretty strong, with new orders and output rising strongly across both sectors.Overall, today’s PMIs point to further acceleration in euro area growth at the end of the year. We maintain our GDP growth forecast unchanged at 2.3% in 2017 and 2.3% in 2018.Read full report here

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The Swiss economy is gaining momentum

December 14, 2017

Swiss growth was disappointing at the end of 2016 and in the first half of 2017. Consequently, GDP growth this year is likely to be just 1.0%, its lowest level since 2012. However, a wide set of statistics are already painting a considerably more positive picture of strengthening growth as we approach the end of 2017. Of particular note is the increasing contribution of manufacturing to real GDP growth.
Switzerland’s economic prospects look promising for next year. Its export industry will continue to benefit from robust global economic momentum, all  the more so if the Swiss franc maintains its current level or depreciates further. Importantly, export growth is set to broaden: in addition to the chemical and

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Increasingly optimistic on Swiss outlook

December 14, 2017

The SNB left its monetary policy unchanged, and sees the Swiss franc as highly valued. However, we expect a first rate hike to open in Q4 2018.At its December meeting, the 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.The SNB’s monetary policy assessment reflected an improvement in the outlook since its September meeting, but remained rather cautious on the currency, mentioning that the Swiss franc is “highly valued” and that the situation on foreign exchange markets is still fragile.Inflation forecasts were revised up. Importantly, the last data point (Q3 2020) was fixed at 2.1%, above SNB’s definition of price

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Euro Area Forecast to Grow 2.3percent in 2018

December 13, 2017

We have upgraded our growth projection for this year and next. There are upside risks to our forecast that the ECB will start hiking rates in Q3 2019.
Taking account of stronger growth momentum, the carryover effect and upward revisions to past data, we have upgraded our euro area annual GDP growth forecasts to 2.3% both in 2017 and 2018. Our forecasts remain consistent with a very gradual slowdown in the quarterly pace of GDP growth, to 2% by end-2018. We view the likelihood of a domestically-generated recession as very low.
The main downside risks are exogenous, including a disorderly Brexit or a sharper-than-expected slowdown in emerging-market growth. Some volatility is likely to return around the Italian

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The Swiss economy is gaining momentum

December 12, 2017

Leading indicators are running at multi-year highs, suggesting that underlying momentum is strengthening and becoming more broadly based.

Owing to weak GDP momentum in late 2016 and the first half of the year, the Swiss economy is likely to see relatively weak growth in 2017. Part of the weakness in GDP figures was due to specific factors. However, leading indicators, notably consumer confidence, manufacturing PMI and the KoF economic indicator are running at multi-year highs, suggesting that underlying momentum is strengthening. As a result, we forecast Swiss annual GDP growth of 1.0% in 2017 (up from our previous forecast of 0.8%) and 2.0% in 2018 (up from 1.7%).
The pick-up in exports is spreading across sectors. In addition to pharmaceuticals

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Further improvement in financial situation of euro area SMEs

December 1, 2017

The improvement and better access to credit bodes well for investment spending in the euro area as we move into 2018.Small and medium-sized entreprises (SMEs) are crucial for the euro area economy. They constitute about 99% of all euro area firms, employ around 70% of the workforce, and generate around 60% of value added. Their economic importance is above the euro area average in Italy, Spain, Portugal and Greece. Unlike large firms, which have access to alternative sources of finance, such as bond or equity finance and are generally more profitable, SMEs are highly dependent on banks for their external financing.After difficulties in obtaining funds during the financial crisis, surveys suggest that obtaining funds is not a problem for SMEs in the euro area anymore. Indeed, the latest

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Switzerland: stronger and broader growth

November 30, 2017

After posting its fastest growth rate in almost three years in the third quarter, the Swiss economy is set to accelerate in 2018.According to the State Secretariat for Economic Affairs (SECO), Swiss real GDP expanded by 0.6% quarter-on-quarter (q-o-q) in Q3 2017, in line with consensus expectations and our own forecasts. This comes after several quarters of poor performance. As we mentioned in our previous Flash Note, the downturn in previous GDP figures was exacerbated by special statistical effects related partly to the inclusion of sports events in the “Art, entertainment, recreation and other services” sector. GDP data appear now more in line with what is signalled by monthly indicators.Overall, Switzerland still lags the US and the euro area in terms of GDP growth, but today’s data

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The euro area recovery is continuing to broaden out

November 14, 2017

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

October 30, 2017

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

October 27, 2017

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

October 25, 2017

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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