Archive

June 25, 2025
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Defence Spending Is Not Stimulative

  • NATO raised its target for defence spending to 5% of GDP, with Spain opting out. This increases pressure for tighter monetary conditions than were otherwise appropriate.
  • Defence spending offers weak growth multipliers, so the policy is more likely to stoke deficits than productivity. Central banks may respond with a more hawkish stance.
  • With debt levels already high, the move risks crowding out other spending and lifting sovereign risk premiums. Bond yields suffer from higher deficits and future rates.

By Philip Rush

June 23, 2025
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Growth Broadly Back In The Black

  • PMI recoveries extended in June, taking averages above 50 as manufacturing is its strongest since Sep-22, and services almost align with its averages of recent years.
  • The UK survey balances suffered from bad vibes, so they are the primary beneficiary of sentiment improving. Their recovery can extend further as vibes improve.
  • Broad expansion helps labour demand to keep pace with supply, denying doves proof of a disinflationary demand shock. Without that, cuts roll later and may not resume.

By Philip Rush

June 18, 2025
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EA Inflation Predictably Near The Target

  • Disinflationary news from May’s flash inflation release was confirmed in the final print, although a rebound in some underlying inflation measures damped the initial signal.
  • Resurgent oil prices could rapidly reverse the dovish space expanded by past falls. Our forecast bumps around the target through 2026 and 2027, settling at 2%.
  • Other forecasts are a little lower and only suffer a slight bias to be exceeded. The ECB can remain reassured by an outlook close to 2% without cuts, and not deliver any more.

By Philip Rush

June 16, 2025
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Euro Area Wage Costs Closer To Target

  • Non-wage labour costs rebounded in Q1, damping the overall slowdown to a surprisingly modest extent after the crash in negotiated wage growth revealed in May.
  • Unit labour cost growth has encouragingly slowed below 3%, with the latest impulse only 0.6% q-o-q. Any further easing here could encourage monetary easing to resume.
  • Stability at a low unemployment rate still suggests the policy setting is close to neutral, so we doubt disinflationary pressures will mount further and forecast no more rate cuts.

By Philip Rush

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