News

Spring has sprung for the UK economy: Led by a rapid recovery in domestic demand, the UK is building serious recovery momentum heading into the summer. Household confidence continued to rise in April, underpinned by rapid vaccine progress and easing virus restrictions, while monthly retail sales surged above their pre-pandemic level in March.

Huge excess savings, record household net wealth and stable employment income set the stage for a robust recovery in household spending

Supported by an aggressive monetary stimulus, an adequate fiscal response and strong global demand, Europe is on track for a solid rebound from the Covid-19 recession. Although the current wave of the pandemic forced parts of the Eurozone to extend or tighten their lockdowns in April, even the badly battered services sector returned to modest growth in the Eurozone in April judging by the results of the monthly survey of purchasing managers.

Eurozone manufacturing continues to go from strength to strength. It is held back in some sectors only by a shortage of critical imports as the surge…

The Eurozone remains on track for a solid rebound from the Covid-19 recession from May onwards, supported by an aggressive monetary policy and an adequate fiscal stimulus. The outlook has not changed materially since early March. Robust foreign demand seems to be roughly offsetting the temporary drag from a delayed easing of restrictions as parts of the Eurozone grapple with a new wave of the pandemic. The European Central Bank (ECB) thus made no relevant changes to its monetary policy statement today, leaving its very accommodative policy stance unchanged and providing no additional guidance…

Inflation normalising

After the COVID-19 shock, a VAT cut in the hospitality sector and an ultra-low oil price temporarily pushed inflation towards zero last year, the latest data show a fading of one-off factors and a broadening recovery in inflation commensurate with the emerging economic upswing.

• The yoy rate of headline inflation (CPI) rose to 0.7% in March from 0.4% in February – slightly below our and the consensus projection of 0.8%. Core inflation increased to 1.1% from 0.9% - Chart 1.

• After several months of declines, goods prices moved sideways in March (up from a 0.5% yoy…

The European Central Bank (ECB) can take it easy this Thursday. The economy and inflation are roughly on track, financing conditions are favourable and markets are calm. The ECB Council need not take any policy-relevant decision or change its guidance in any way. Although the ECB may tweak the precise wording of its statement here and there, we do not expect the ECB to send any a new signal. Instead, the council can take its time to discuss the more strategic decisions it will need to take lateron.

Real economy

The ECB’s March staff projections for Eurozone GDP growth of 4.0% for 2021 and…

The parties have made their choice. “Continuity” candidate Armin Laschet will run for the CDU/CSU to succeed Angela Merkel as German chancellor after the 26 September election. The Greens already nominated Annalena Baerbock as their candidate yesterday without any fuss. The noisy conflict between Laschet (CDU) and his challenger Markus Söder (CSU) has drawn attention away from the key question: will German policies shift significantly after 16 years of Merkel at the helm – or will the changes remain gradual?

In many respects, Germany works largely by consensus. Big shifts like the 2003/2004…

Still holding up

After the sharp drop in employment, hours and wage growth during the first wave of the pandemic in Spring 2020, the latest data continue to show that the labour UK market remained mostly stable through the now fading second (winter) wave of the pandemic. As part of a broader economic trend, the labour market estimates show that households and businesses are adapting better to pandemic-related restrictions the longer they go on.

The unemployment rate edged lower to 4.9% in February from 5.0% in March while the employment rate moved sideways (60.3%). As the key measure of…

Söder against Baerbock in September? Germany will be in the news in the next two days and weeks. In Angela Merkel’s CDU/CSU, the fight about a joint candidate to succeed her as chancellor after the 26 September election seems to have tilted a bit in favour of Markus Söder. The dispute could be resolved today or tomorrow. Separately, the Greens will announce their own candidate for the chancellorship at 10h BST today. The odds seem to favour Annalena Baerbock. And before the end of April, Germany’s Constitutional Court is expected to rule whether or not Germany can ratify the law that would…

RECORDED INFECTIONS (see chart 1 below and pages 2-3 of the slide pack)

• Eurozone: After a temporary decline to 27.4 recorded daily infections per 100,000 people on 9 April, the incidence number has edged up again to 30.0 on 15 April. The temporary dip seems to have reflected less intense testing and reporting in some countries over the Easter holiday season. Germany, for example, conducted 19% fewer tests in the week of 5-11 April than it had done at the peak two weeks earlier. That the share of positive tests rose further over the same period from 9.3% to 12.0% indicates that the…