Weekly Economic Insight - 15 October 2018

Macro Highlights - 10/18/2018

Highglihts of the week

Economist insights: Will the Italian budget trigger a resurgence of the eurozone crisis?

  • In Italy, the draft budget law, voted by the parliament on 11 October, confirmed a deterioration in the country’s budgetary and structural deficits, which drove a further rise in government yields
  • Pending the opinion of the European Commission between now and the end of October, and the decisions of the rating agencies, the volatility of Italian yields could remain high
  • However, according to our analysis, the very low risk of an exit of Italy from the eurozone and the holding structure of Italian debt could limit the potential increase in these yields in the medium term
  • Moreover, the ECB’s determination since 2012 to prevent any contagion effects should continue to prevent a spillover of fears to other eurozone countries
  • Thus, pressure on Italian bonds should not lead to a sharp rise in other peripheral yields and, thereby, not trigger a resurgence of the eurozone crisis
  • Despite this and even if the diffidence toward Italy were to diminish slightly at the start of 2019, the euro is unlikely to see a sustainable appreciation against the dollar, according to our analysis

Focus Switzerland: Review of the first semester and short-term outlook of the Swiss economy

  • The review of the first semester of 2018 shows that the Swiss economy benefited from a favourable international economic environment and a weaker Swiss franc
  • Thus, it is currently experiencing strong GDP growth, which favours a positive trend in the labour market
  • Moreover, inflation continues on its upward trend but remains within the zone of price stability, which has led the SNB to maintain its accommodative monetary policy stance
  • We expect strong GDP growth in the second semester of 2018, but slightly lower than in the first semester
  • The SNB is likely to opt for the monetary status quo in December, as inflation is unlikely to post a strong acceleration


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