Read my lips – Assessing the recent ECB’s communication

The last two ECB meetings have resulted in the largest bond sell-off (June 5) and the largest bond rally (July 3) ever occurred on the day of a regular Governing Council meeting. ● This has brought the issue of communication back to the fore, ending the two-year long honeymoon between the ECB `and the markets […]

Investment outlook clouds

The strong 1.6% rise in Gross Fixed Capital Formation (GFCF) recorded in the first quarter is probably the last shot of the sustained investment upswing that began in Q2 2005. Investment has a weight of only slightly more than 20% of GDP, but GFCF has been the first endogenous driver of the business cycle inversion […]

The credit cycle: where do we stand?

Outstanding Germany’s resilience aside, probably the most puzzling feature of the current eurozone cycle juncture is the lending dynamics that at face value so far has been unscathed by the financial crisis erupted eight months ago. This holds particularly true when one looks at official figures on loans to non-financial corporations (NFC) as computed by […]

ECB forecast change: refi rate to fall to 3% by mid-2009

with Marco Valli ● We have turned more negative on the eurozone and we revised downward our growth forecast for this year and next to take into account the worsened global scenario. ● We now forecast only 1.5% GDP in 2008 and 1.6% in 2009, down from 1.9% and 2.1% previously expected. Sub-par expansion will […]

ECB 2008 Outlook – Steady and Firm

When the financial markets crisis erupted, the ECB was enjoying the widespread acknowledgement of a remarkable improvement in its credibility and reputation under the Trichet’s presidency. First, there had been the great call of December 2005 when the central bank, relying on a sanguine growth outlook, began its tightening campaign amidst the general skepticism. Then, […]

The Credit Vengeance?

One of the key passages of the section dedicated to Western Europe within the latest IMF’s World Economic Outlook reads “growth is also likely to be affected by tighter availability of bank credit”. Again, when commenting about heightened downside risks to growth, the Fund clearly states “Deteriorating conditions in credit markets could further slow consumption […]