Week Ahead (11 September)

Monday, 11 September – European Commission’s Summer Economic Forecast to be released

Today, the European Commission will publish its 2023 Summer Economic Forecast. In its Spring Economic Forecast, the Commission revised growth for the Eurozone up to 1.1% for 2023 and 1.6% for 2024, slightly higher than the February predictions of 0.9% and 1.5%, respectively.

However, the eurozone's GDP showed meagre growth of only 0.1% in Q2 2023 compared with the previous quarter. Furthermore, the deceleration in economic activity was also predicted by the closely monitored HCOB's Eurozone Composite Purchasing Manufacturer Index, which experienced a sharper-than-expected decline in August, dropping from 48.6 in July to 46.7. This decline was primarily driven by a weakening services sector, raising concerns that the Euro area is losing its growth momentum faster than expected. Regarding inflation, the Commission currently anticipates Eurozone inflation to average 5.8% year-on-year for this year before decreasing to 2.8% in 2024. In July, the ECB's survey of year-ahead inflation expectations remained unchanged at 3.4%. but expectations for inflation three years from now increased to 2.4% from June's estimate of 2.3%.

Hence, per EU Economy Commissioner Paolo Gentiloni, the Commission’s Summer Economic Forecast is expected to be ‘’a little bit less optimistic’’ than previous growth estimates.

Wednesday, 13 September – President von der Leyen to deliver State of the Union speech ahead of EU elections

On Wednesday, the President of the European Commission, Ursula von der Leyen, will deliver her annual speech on the State of the European Union in Strasbourg. This will be the final such speech ahead of the EU elections next June, outlining the bloc’s priorities in the coming months. Earlier this month, von der Leyen engaged in a closed-door meeting lasting more than an hour with the leaders of the political groups within the Parliament to gather insights and suggestions in preparation for her forthcoming speech.

Last year, her speech focused on tackling the energy crisis in the bloc, following Russia’s invasion of Ukraine, as part of her broader push for an EU-wide effort to control natural gas and electricity prices. This year, she is expected to focus on industrial policy, particularly green technologies, as part of the EU’s quest for greater strategic autonomy. Aiming to prevent risks of de-industrialisation, the European Commission unveiled in March the Net-Zero Industry Act and the Critical Raw Materials Act, both part of its Green Industrial Plan, the EU’s own response to the U.S Inflation Reduction Act of 2022 (IRA). The bloc is expected to intensify its reindustrialisation efforts in the coming months.

Von der Leyen has not yet confirmed whether she plans to run for a second term in 2024. Although this remains the most likely scenario, there is also speculation about her succeeding Jens Stoltenberg in the role of NATO secretary-general. In case she decides to run for another term, it is also unclear whether she would participate in the informal Spitzenkandidaten process or anticipate a direct appointment, similar to 2019.

Thursday, 14 September – ECB Governing Council to hold monetary policy meeting in Frankfurt

On Thursday, the ECB Governing Council (GC) meets to decide the next steps for Eurozone’s interest rates. The meeting comes two weeks after Eurostat released its August inflation data, which showed inflation remained stable at 5.3% compared to July. However, core inflation eased from 5.5% in July to 5.3% in August – something welcomed by ECB Chief Economist Philip Lane who also outlined his expectation in a 5 September interview that core inflation will “come down throughout the autumn.” 

In trying to curb inflation, the ECB has raised interest rates in its 9 successive meetings since July 2022. At the ECB’s last meeting in July, Philip Lane suggested that ECB interest rates would “be set at sufficiently restrictive levels for as long as necessary” to achieve the Governing Council’s 2% medium-term target. Nevertheless, in a Reuters survey of 69 economists, 39 expect rates to be unchanged with 30 expecting a rate increase. While one more hike to bring the interest rate to 4% appears to be priced in, market consensus is that this is just about more likely to happen at the October or December monetary policy meetings.

Thursday, 14 September – Provisional deadline for CJEU’s ruling on Volkswagen’s diesel emissions scandal

On Wednesday, the Court of Justice of the EU (CJEU) is expected to rule on the Volkswagen diesel emissions scandal case (C-27/22).

In August 2016, the Italian competition authority fined Volkswagen €5 million due to its malpractice during the diesel emissions scandal. Volkswagen Italia appealed the ruling but before the appeal was heard, the public prosecutor’s office in Brunswick, Germany imposed a penalty of €1 billion for a breach of its obligation to supervise activities and undertakings. That penalty related, inter alia, to the global marketing (including on the Italian market) of vehicles equipped with systems designed to alter the measurement of pollutant emissions for the purposes of type-approval, and to the dissemination of advertisements that, notwithstanding the alteration of the measurements of emissions, showed that those vehicles were particularly environmentally friendly. The substance of Volkswagen’s appeal relates inter alia to whether two criminal sanctions can be handed down in two separate EU Member States for the same criminal offence.

Following Volkswagen’s appeal to the Italian Council of State, the case was referred to the CJEU. In a non-binding opinion in March, the Court’s Advocate General Manuel Campos Sanchez-Bordona argued that the fact that Volkswagen was charged twice for the same offence by the Italian and German authorities could be a case of ‘’double jeopardy’’, demonstrating a lack of coordination between the two regulators. Although the opinion was non-binding legally, the CJEU’s judgement, expected this week is likely to resemble the advocate general’s opinion, given that the Court usually follows four out of five recommendations.

Friday, 15 September – Saturday, 16 September - EU finance ministers to hold informal meeting and discuss new EIB presidency, although a decision remains unlikely

On Friday, EU finance ministers will meet in Santiago de Compostela to discuss inter alia the candidates for the presidency of the European Investment Bank (EIB). Belgium is currently chairing the EIB and last week circulated the CVs and cover letters of candidates to finance ministries, asking finance ministers to agree on a candidate. However, a decision is unlikely this week and the process could continue right through October.

The two leading candidates are Spanish Economy Minister Nadia Calviño and Margrethe Vestager, the EU's antitrust chief. The winner will require 68% of the EIB share capital to back them which means that the position of France and Germany will likely be decisive. The outcome could particularly be influenced by the stance of French President Emmanuel Macron, who values the EIB's support for French nuclear and defence projects. Macron's backing could hold significant sway, especially given his recent disagreement with Vestager over the latter’s proposed appointment of American economist Fiona Scott Morton as the EU chief competition economist.

On the other hand, one potential advantage for Vestager is the candidacy of Bank of Spain deputy governor Margarita Delgado for the position of chair of the ECB’s Single Supervisory Board. The ECB will decide who gets this position this week and if Delgado is successful, there will be questions around Spain having too many important finance jobs.

Friday, 15 September – Bank of England/Ipsos inflation attitudes survey to be published

The latest Bank of England/Ipsos inflation attitudes survey will be published on Friday. The survey takes place quarterly and aims to assess public attitudes to inflations and opinions about the Bank and its work.

In the June survey, respondents gave a median answer of 9.6%, up from 9.2% in February 2023 when asked to give the current rate of inflation. However, when asked about the expectation of inflation in the longer term, respondents gave a median answer of 3.5%, down from 3.9% in February 2023. When asked about expectations of inflation in the long term (five years) respondents gave a median answer of 3.0%, unchanged from February 2023, the highest level since 2008. According to the Office of the National Statistics (ONS), the Consumer Prices Index (CPI) stood at 6.8% in the 12 months to July 2023, down from 7.9% in June.

Most people have expressed dissatisfaction with the interest rate hikes as 37% of respondents believe that interest rates should go down, while 16% thought that interest rates should go up. The BoE has implemented 14 consecutive interest rate hikes since December 2021 in an attempt to halve inflation from a 40-year high of 11.1% in October 2022.

The BoE Governor, Andrew Bailey who appeared before the Treasury select committee in the House of Commons, said he expects inflation to be “on a downward path” and that interest rate hikes are “much nearer now to the top of the cycle”. However, it is likely the BoE and Treasury will maintain their strategy of raising interest rates in an attempt to reach its ultimate inflation target of 2%.