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Thomas Dvorak @tomdvorak.bsky.social · 08/10/2025

Join us tomorrow for the next instalment of our Eurozone Research Webinar, this time on the impacts of fiscal policy. We will discuss Eurozone's fiscal position and the impact of the German fiscal stimulus & European defence spending drive. Register here: www.oxfordeconomics.com/webinar/euro...

oxfordeconomics.com

Eurozone Research Webinar: Economic impacts of fiscal policy

In this instalment of our Eurozone research webinar series, we will present our recent research on fiscal positions of various countries in the Eurozone and our assessment of the macroeconomic impact ...

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Reposted by Thomas Dvorak

Dan Davies @dsquareddigest.bsky.social · 09/08/2025

What seems to have been happening here is that in order to get the fair to middling improvements in output, it has become necessary to throw much more compute at every query, at a rate which has increased faster than the learning curve for the tokens themselves. That ... ain't good.

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Thomas Dvorak @tomdvorak.bsky.social · 01/07/2025

Ticket barriers at Stansted Airport train station. Is it snowing in hell?

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But it's not all doom and gloom: despite the heightened levels of uncertainty, double digit tariff rates being sounded off on the daily and recession fears, both consumer and business confidence seem to be holding up relatively well, as evidenced by our NLP-based proprietary sentiment data! 10/11

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Labour market is key. Our baseline is for hiring to grind to a halt, but for firms in aggregate to hold on to workers. But a larger deterioration in the job market would dent consumer spending even more and put the Eurozone economy uncomfortably close to a recession. 9/11

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Data from online searches shows consumer spending, the key driver of growth in the eurozone over the past 18 months, is slowing down. While we tend to think of uncertainty as mainly affecting firms' investment decisions, consumers don't like it either. 8/11

Online job postings have dipped sharply around "Liberation Day", but have bounced back since, although they remain on a downward trend. Crucially, this trend isn't any more pronounced for manufacturing or logistics jobs which are more exposed to tariffs. 7/11

Electricity consumption data correlate well with industrial production, and they are showing a decline in manufacturing output in April & May after tariffs have been imposed - though tariff front-running in Q1 is likely overstating the scale slightly. 6/11

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This is why at Oxford Economics we also track a variety of high frequency alternative data for a glimpse into the economy in near-real time. Such data is unofficial but nonetheless useful in tracking economic activity - and they're already showing signs of the tariff impact. 5/11

Consider this - we'll only get flash Eurozone GDP growth numbers for Q2 in early July. Consumer spending data a month later still. Industrial production numbers for April? We'll get those mid-June. At a time of rapid economic changes, this simply isn't good enough. 4/11

These tariffs are already applied, and that chain reaction is already feeding through the economy. The problem is, waiting for that to show in the standard macroeconomic data will take quite a long while. 3/11

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In fact, the current trade-weighted tariff rate is about 9%, accounting for all the exceptions and higher rates on specific goods such as metals or cars. It could rise to 15% if pharmaceuticals are also tariffed. 2/11

US tariffs are already having a harmful economic impact in Europe - but you won't see it in traditional data for months. You'd be forgiven for not knowing what tariffs the US is charging. Is it 10%, the "reciprocal" 20% or are we at 50% now? Or from June? Or is that July? 1/11

Congratulations, well deserved! (Not sure the same can be said about Spurs though)

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Our pay nowcast suggests private sector regular pay growth will stabilise in Q2, rather than fall as the BoE expects. As the MPC puts a high weight on pay as an indicator of underlying inflation pressures, this is likely to reinforce the caution around the pace of rate cuts. 7/8

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Our measure of labour market sentiment has stabilised at very low levels. The detailed results continue to suggest that firms are prioritising retention over recruitment, though encouragingly the score for expansion plans has progressively strengthened in the past six months. 6/8

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What's the data saying at the moment then? UK employment growth has continued to slow in recent months. But as yet, there is no evidence that last month’s increases in employers’ NICs and the national living wage have triggered large-scale job losses. 5/8

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We have been using proprietary NLP-based sentiment data (developed with Penta) to successfully nowcast UK's wage and employment growth long ahead of the official data releases. The granular sentiment data also provide a timely glimpse into the labour market. 4/8

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Yet the impact on hiring and wage growth is crucial for the Bank of England to set monetary policy, particularly as it still has to contend with sticky services inflation - wage costs are a large component of services prices. Regular macro data just don't cut it in this case. 3/8

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Good case in point is the UK, where the employers' NICs and National Living Wage hikes went into effect recently. Waiting to assess the impact using traditional employment & wage data will take months. And the labour market data in particular are suffering from poor quality. 2/8

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Traditional macroeconomic data is slow - collected at low frequency and released with a long lag. This means that policymakers are effectively flying blind when making decisions. At Oxford Economics, we use a variety of timely alternative data to get around this problem. 1/8

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There are of course two sides to this coin - EU producers might well supplant Chinese exports in the US, thanks to lower *relative* tariffs. We estimate the ceiling of that to be $150bn (5% of the EU's manufacturing GVA). This highlights the variety of shift tariffs bring to global trade. 10/10

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There is a substantial overlap between the Chinese exports to the US & the EU but we remain sceptical about the flooding of EU markets. Chinese firms' profitability is already low and the government stimulus efforts seem to be focused elsewhere. Plus the EC might always respond with tariffs. 9/10

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On the downside, the most commonly cited risk is China flooding the EU markets with its surplus capacity it might no longer be able to export to the US. There has been a steady rise in Chinese exports to the EU in the latest data. 8/10

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New supply chains forced by tariffs are unlikely to be as efficient as those forged by market forces. Restricted US market access will reduce firms' returns to scale, resulting in higher prices globally. Firms might also dilute the US tariff surcharge in their global pricing. 7/10

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We think there are two-sided risks on supply-driven inflation. Any tariff retaliation will inevitably push prices higher. As businesses adjust & reorient complex global supply chains, various pressures might yet emerge - though US-EU supply chain linkage is relatively low. 6/10

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Similalrly, import & producer prices show little sign of supply pressures - if anything, it's the opposite, with price growth running well below 2%. Stronger euro also helps. It's still early days, but this is a relatively good position to enter the era of high tariffs from. 5/10

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Low demand remains the main hurdle to growth. There were nascent signs of a gradual pick up in manufacturing in early 2025, particularly for consumer goods - but tariffs have likely all but derailed this. 4/10

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Timely survey data corroborate this. Eurozone manufacturing firms reported a softer assessment of expected capacity constraints in Q2, and production expectations fell across sectors. This suggests the negative demand shock from US tariffs outweighs any supply concerns. 3/10

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First of all, our proprietary Eurozone Supply Stress Indicator (ESSI) points to ongoing easing in supply pressures since mid-2024 - this trend remains intact even after the April 2 US tariff announcement. Supply pressures are now broadly at their historical average. 2/10

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No signs of tariff-induced supply stress – yet

We take the view that US tariffs are a negative demand shock for Europe. But many have argued there might be adverse supply impacts too. We agree there’s a risk, but so far it’s not visible in the data. See our latest research briefing for detail. www.oxfordeconomics.com/resource/no-... 1/10

oxfordeconomics.com

Our proprietary Eurozone Supply Stress Indicator shows that supply stress is still low, even after the US tariff announcement on April 2. Although the impact of tariffs will take time to feed through ...

Thomas Dvorak @tomdvorak.bsky.social · 16/05/2025

I think the monthly growth number for Europe in there makes the same mistake as the US chart of not adjusting for the moveable Easter data. Tourism Economics is actually one of our companies and I think their 2025 projection sounds very plausible.

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Thomas Dvorak @tomdvorak.bsky.social · 16/05/2025

Yes I think this is a fair point that applies to most Europeans. Though you’d think the decline would be more visible eg in Danish data, where the tussle with the US started earlier. But my point was really that it’s too early to tell either way & the March “decline” was not indicative of anything.

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Thomas Dvorak @tomdvorak.bsky.social · 16/05/2025

I think it’s too early to tell. European travel to the US is mostly pre-booked and the “TRUMP” effect - if there is any - will take time to feed through. It’ll be clearer towards the end of the year. But the March “drop” was a statistical artifact rather than anything tangible.

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That and the Lunar new year are the worst!

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Yes I think with Canada there’s no doubt there’s a massive impact. Not surprising as well given a) the rift between the two countries in political terms and b) given that travel from CAN to US is much quicker, cheaper and planned less in advance.

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I would mostly agree with that - though say the tussle with Denmark over Greenland began earlier than that and there is a drop in the Danish arrivals data, but even there April was quite strong. But yes, we’ll only really know come the end of the year.

Brilliant article - super interesting

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This is probably true and stronger euro (weaker dollar) likely helped as well. I really don’t think we can draw too many conclusions before the end of the year to be completely honest.

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There are interesting country differences by the way. I think you can plausibly say the French don't go to the US anymore. But that most certainly can't be said about the Italians. 9/9

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Does this have to do with Trump? Consumer caution in a world plagued with historical levels of uncertainty (come to think of it, that's also techinically thanks to Trump)? Travellers going for cheaper destinations? Hard to tell, but might become clearer from more data. 8/9

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You can see perhaps a small drop in the seasonally-adjusted data. Seasonal adjustment methods always have a degree of imprecision, but we're looking at anything between 0-5% y/y drop in European tourist arrivals to the US in April. March was weak, April quite strong. 7/9

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So to the bigger question then - once adjusted for Easter, are Europeans really shunning the US under Trump? In short, it's hard to tell. It's true that March was pretty weak even adjusted for Easter. But guess what, April was pretty strong by historical standards. 6/9

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The Easter "boost" to European tourism flows to the US is large, to the tune of ~20-40% m/m increase over the previous "non-Easter" month. It's much more pronounced for Western European countries, and it's a seasonal effect you can depend on. 5/9

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In April, it's basically the whole thing in reverse. No Easter in April 2024. Yes Easter in April 2025. And suddenly, you get this big "bounce" in Europeans coming to the US. This has nothing to do with Trump, and all to do with public holidays and a certain "Jesus" fellow. 4/9

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Easter is a bit of a nightmare for seasonal adjustment because it moves about between March and April. Last year, it fell on March (and boosted March 2024 European tourism outflows). The other side of the coin - no Easter in March 2025, so a "drop" in travel. 3/9

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