Daily Insight
Group Economics Macro & Financial Markets Research
18 December 2015
Another ECB rate cut in 2016 Nick Kounis
Head of Macro and Financial Markets Research
We expect the ECB to cut its deposit rate again next year, as the inflation outlook continues to disappoint
Tel: +31 20 343 5616
…however we do not expect a further stepping up of QE
maritza.cabezas@nl.abnamro.com
Eurozone labour costs growth slow down - real wage growth remains high but inflationary pressures stay low
Aline Schuiling Senior Economist
Tel: + 31 20 343 5606
xxxxxxxxxxxxxxxxxxxxxxx opportunity to thank our readers for their support and to wish them a happy xxxxxxxxxxxxxxxxxxxxxxx
aline.schuiling@nl.abnamro.com
This is the last Daily publication of the year. We would like to take this
festive season.
ECB to ease monetary policy further… The ECB's efforts to step up monetary stimulus are not over yet. We expect the central bank to cut interest rates again. A 10bp cut in the deposit rate in March of next year looks to be on the cards. The central bank projected an under-shoot of its inflation goal in December and was hoping that the stimulus package it announced would close the gap. However, downside risks to its inflation goal have instead increased since then. The EUR/USD rebounded following the ECB’s meeting, and has not come down much following the FOMC meeting. Oil prices have also dropped sharply. 2016 looks likely to be the third year in a row that inflation comes out at less than half the ECB’s price stability goal. Finally, underlying inflationary pressures are still very weak, as shown by subdued labour cost growth (see below). …deposit rate cut rather than new bazooka At the same time, the eurozone economy is also recovering. This and limits to the scale of QE means that the ECB’s additional stimulus will be moderate rather than a new bazooka. We therefore expect the ECB to continue QE through the end of next year, but do not expect a further sharp scaling up of the size of asset purchases. Eurozone labour costs growth slows down Data published by Eurostat yesterday show that the rise in total hourly labour costs in the eurozone slowed down from 1.6% yoy in Q2 to 1.1% in Q3. Growth in hourly wages and salaries fell from 2.0% to 1.4% , while, the rise in non-wage labour costs (largely taxes on labour) declined from 0.3% yoy to 0.1%. Despite the slowdown, growth in wages and
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2
Daily Insight – Another ECB rate cut in 2016 – 18 December 2015
salaries remained well above the inflation rate of just above zero, which is supporting private consumption. Moreover, the fact that overall labour costs are rising more modestly than wages and salaries is beneficial for corporate profitability. On top of that, on a macroeconomic level profitability is also benefitting from ongoing productivity gains, with employment (1.1% yoy) growing more modestly than GDP (1.6% in Q3). As a result, unit labour costs rose by merely 0.5% yoy, well below the rise in labour costs. Although beneficial to corporate profitability, the modest rise in unit labour costs suggests that underlying inflationary pressures stemming from the labour market remain subdued. Looking at the sector level, growth in wages and salaries slowed down the most in the industrial sector in Q3 (to 1.7% from 2.6%), while the slowdown in services (to 1.6% from 2.0%) and construction (1.3% from 1.7%) was more moderate.
Eurozone wage growth and unit labour costs % yoy
3.0 2.5 2.0 1.5 1.0 0.5 0.0 12
13 Wages & salaries private sector
Source: Thomson Reuters Datastream
14
15 Unit labour costs
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Daily Insight – Another ECB rate cut in 2016 – 18 December 2015
Day
Date
Time
Country
Saturday Saturday Saturday
12/12/2015 12/12/2015 12/12/2015
06:30:00 06:30:00 06:30:00
CN CN CN
Monday Monday Monday Monday Monday Monday
14/12/2015 14/12/2015 14/12/2015 14/12/2015 14/12/2015 14/12/2015
00:50:00 05:30:00 07:30:00 11:00:00 13:00:00 15:45:00
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
15/12/2015 15/12/2015 15/12/2015 15/12/2015 15/12/2015 15/12/2015 15/12/2015 15/12/2015 15/12/2015 15/12/2015
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
Key Economic Indicators and Events
Period
Latest outcome
Consensus
Retail sales - % yoy Industrial production - % yoy Fixed asset investment - % yoy
Nov Nov Nov
11.2 6.2 10.2
11.1 5.7 10.1
JP JP IN EC IN EC
Tankan business conditions large enterprises Industrial production - % mom Wholesale price index - % yoy Industrial production - % mom CPI - % yoy ECB announces weekly QE details
4Q Oct F Nov Oct Nov
12.0 1.4 -2.0 0.6 5.4
11.0
09:30:00 10:30:00 11:00:00 14:00:00 14:30:00 14:30:00 14:30:00 14:30:00 14:30:00 16:00:00
SE GB DE HU US US US US US US
Policy rate - % CPI - % yoy ZEW index (expectation economic growth) Base rate -% Empire State PMI - Manuf. general business conditions - index Inflation excl food and energy - % mom Inflation excl food and energy - % yoy Inflation (CPI) - % mom Inflation (CPI) - % yoy NAHB home builders' confidence index
Dec 15 Nov Dec Dec 15 Dec Nov Nov Nov Nov Dec
-0.35 0.1 16.1 1.4 -4.59 0.2 2.0 0.0 0.5 61
0 0.1 15.4 1.4 -6.68 0.2 2.0 0.0 0.5 63
16/12/2015 16/12/2015 16/12/2015 16/12/2015 16/12/2015 16/12/2015 16/12/2015 16/12/2015 16/12/2015 16/12/2015 16/12/2015 16/12/2015
10:00:00 10:00:00 10:00:00 10:30:00 10:30:00 11:00:00 13:00:00 14:30:00 15:15:00 15:45:00 20:00:00 20:30:00
EC EC EC GB GB EC CZ US US US US US
PMI manufacturing - index PMI services - index Composite PMI output Claimant count unemployment rate - % Change in claimant count - thousands Core inflation - % yoy Repo rate - % Housing starts - % mom Industrial production - % mom Markit - Flash PMI Policy rate - % FOMC statement and press conference
Dec P Dec P Dec P Nov Nov Nov F Dec 16 Nov Nov Dec P Dec 16 Dec 16
53.1 53.9 54.0 2.3 3.9 0.9 0.05 10.5 -0.6 51.3 0.25
52.7 54.1 54.1 2.3 2.5 0.9 0.05 8.0 -0.2
0.05 9.0 -0.2
0.5
0.5
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
17/12/2015 17/12/2015 17/12/2015 17/12/2015 17/12/2015 17/12/2015 17/12/2015 17/12/2015
00:50:00 07:30:00 10:00:00 10:00:00 10:30:00 14:30:00 14:30:00 20:00:00
JP NL DE NO GB US US MX
Merchandise trade exports - % yoy Unemployment rate Ifo - business climate - index Policy rate - % Retail sales - % mom Initial jobless claims - thousands Philadelphia Fed - business confidence - index Policy rate - %
Nov Noc Dec Dec 17 Nov Dec 12 Dec Dec 17
-3.30 6.8 108.7 0.75 1.7 271 -5.9 3.3
-1.60
Friday Friday
18/12/2015 18/12/2015
06:30:00
NL JP
Consumer confidence - index Policy rate - %
Dec Dec 18
9 80.0
-2.6 0.2 5.3
108.9 0.58 0.7
ABN AMRO
0.1
0.1 10.0
0.2 1.9 0.0 0.5 63 52.1 53.9 53.8
6.9 108.4 0.75
1.0 3.1 9
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
Find out more about Group Economics at: https://insights.abnamro.nl/en/
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