Growth outlook improving, but ECB too optimistic

Growth outlook improving, but ECB too optimistic

The euro-zone’s growth outlook is improving thanks to the acceleration in the vaccine rollout and the re-opening of the economy. However, we were surprised at the size of the upward revision to the ECB’s GDP forecasts this week, and we are more downbeat than the ECB on the outlook for inflation. We also think labour cost data for Q1 (to be released next week) will show no signs of wage inflation, and more generally we don’t expect much sign of rising wage pressures in the coming quarters.
Jessica Hinds Europe Economist
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European Economics Update

Not tapering yet, despite chunky forecast upgrades

Having left the pace of its PEPP purchases unchanged and made big upgrades to its GDP forecasts, we think the ECB will start to taper the PEPP later this year. But we think it will eventually make an offsetting increase to other asset purchases and will leave its deposit rate unchanged for longer than most anticipate.

10 June 2021

European Economics Focus

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We estimate that the spare capacity in the euro-zone’s labour market has increased by around four million people, or 2.5% of the labour force, since the start of the pandemic. This is likely to disappear over the next couple of years as the economy recovers. Labour shortages are appearing as the economy re-opens, but these are likely to prove temporary and so will not put general upward pressure on wages or inflation.

9 June 2021

European Data Response

Euro-zone GDP & Employment (Q1)

Euro-zone GDP fell in Q1 and official data for April have been weak, but timelier data suggest that the recovery is now underway. We have pencilled in a 1% q/q rise in GDP in Q2, with risks to the upside.

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More from Jessica Hinds

Nordic & Swiss Data Response

Norway & Sweden Consumer Prices (May)

Inflation in Norway and Sweden was lower than expected in May, with core inflation falling in both economies. This will reassure Sweden’s Riksbank that it can keep its policy rate on hold, but we still think that the Norges Bank, which is worried about rising house prices, will start raising interest rates in Q3.

10 June 2021

European Economics Focus

Labour market recovery won’t spark wage spiral

We estimate that the spare capacity in the euro-zone’s labour market has increased by around four million people, or 2.5% of the labour force, since the start of the pandemic. This is likely to disappear over the next couple of years as the economy recovers. Labour shortages are appearing as the economy re-opens, but these are likely to prove temporary and so will not put general upward pressure on wages or inflation.

9 June 2021

European Data Response

Euro-zone Retail Sales (Apr.)

Euro-zone retail sales fell back again in April to below their pre-pandemic levels. But the re-opening of non-essential retail throughout much of the euro-zone in May means they will have improved again in May and should support the recovery in Q2 and Q3.

4 June 2021
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