We do not think that the recent strengthening of the euro is the result of a change of tactics from the ECB, away from trying to manage the exchange rate towards attempting to boost domestic demand. Nevertheless, if it is sustained, the stronger euro will weigh on export growth.
What’s more, if we are right that commodity prices will rise this year, the euro-zone’s import bill will increase. The net effect would be to reduce the euro-zone’s trade surplus and GDP. This is one of the key reasons that we expect GDP growth to slow this year.
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