The economic situation in the eurozone continues to improve: confidence surveys point to a very positive trend, although the latest “hard” economic data suggest that the prevailing optimism should be tempered somewhat. Our growth forecasts have been upgraded since the end of 2016. Yet, despite the economic improvement, labour market slack remains significant and results in very low inflation if we exclude the most volatile elements from the figures. With this in mind we continue to expect monetary policy to remain accommodating for some time, characterised by an extremely gradual withdrawal of non-conventional measures from January 2018.
The eurozone economic situation is improving. After growth of 0.5% q/q in Q4 2016, the various confidence surveys conducted since the beginning of the year have suggested that growth will continue at a similar or perhaps even stronger rate in the first quarter of 2017. It is nevertheless important to note the recent appearance of a gap between the very positive image created by surveys and the more mixed picture painted by “hard” economic data (see chart). In particular, the industrial production figures for February were disappointing, notably in France.
It therefore remains to be seen to what extent GDP figures, the first estimate of which will be published on 28 April, confirm the general mood of optimism. Even so, barring any accidents, eurozone growth is likely to continue to set a fairly strong pace, something that was far from assured just a few months ago: between the Brexit vote, rising energy prices and the European electoral calendar, the risks seemed to be clearly on the downside. This positive surprise should not, however, give rise to unbridled optimism. Despite the economic improvement, the lag in production accumulated since 2008 is significant and has resulted in very low inflation if we exclude the most volatile elements from the figures. With this in mind we continue to expect monetary policy to remain accommodating for some time.
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by Thibault MERCIER