All articles tagged with #euro area
Eurozone headline inflation rose to 3.3% in August, driven by energy-price pressures linked to the Iran conflict, while core inflation cooled to 2.4%; markets price in a 25 basis-point ECB rate increase in September, though policymakers must weigh higher borrowing costs against pain for indebted households and SMEs.
Deutsche Bank Research warns the euro area will slow sharply in 2026, with GDP growth around 0.5% (down from 1.1%), a Q2 contraction followed by stagnation and a later modest rebound. The energy shock lifts the euro-area energy import bill and inflation (HICP averages about 3.1% in 2026, 2.5% in 2027), and ECB policy is expected to tighten by about 50 basis points to 2.50% by September. Germany is seen at ~0.5% growth, France ~0.5%, Italy ~0.4% in 2026, while the UK could fare relatively better around 1.0% growth; downside risks rise if Hormuz-related disruptions persist.
ECB's March 2026 projections for the euro area foresee real GDP growth of 0.9% in 2026, 1.3% in 2027 and 1.4% in 2028, with headline inflation peaking around 3.1% in mid-2026 before easing to about 2.0–2.1% by 2027–28; energy-price shocks from the Middle East drive the near-term inflation surge, while domestic demand and a resilient labor market support a gradual recovery. The baseline uses energy-price paths up to 11 March 2026, and includes alternative downside scenarios (adverse and severe) showing larger, longer-lasting energy disruptions and higher inflation with weaker growth. Fiscal loosening in 2026 is expected to give way to consolidation in 2027–28, with global conditions weighing on euro-area foreign demand.
The European Central Bank held all three key rates at 2.00%, 2.15%, and 2.40%, reaffirming a data‑dependent path to bringing inflation to 2% in the medium term. The euro area economy shows resilience, with low unemployment and supportive fiscal spending, but faces global uncertainty. The APP and PEPP will not be reinvested as they mature, and the Council remains ready to adjust policy tools, with the Transmission Protection Instrument available to counter market disruptions.
The European Central Bank is set to cut borrowing costs for the euro area for the first time since 2019, ending a period of rapid rate hikes initiated after the Covid-19 pandemic. Despite higher-than-expected inflation in May, the ECB believes a rate cut is justified. However, further cuts seem unlikely in the near term due to persistent domestic inflation and concerns about moving too quickly. The divergence between ECB and U.S. Federal Reserve policies could impact the euro-dollar exchange rate and inflation.
Germany's Q4 GDP figures show a small decrease, preventing the country from entering a technical recession, while the Euro Area narrowly avoids a recession with no growth in Q4 following a slight contraction in Q3. Key upcoming events include the US consumer confidence report, the FOMC meeting, the Bank of England's quarterly forecast, and earnings reports from major companies like Apple. Technical analysis indicates sideways trading for the US dollar index, stabilization of the euro, sideways movement for cable (GBP/USD), slight gains for gold due to geopolitical tensions, and a potential reversal for dollar-yen.
The International Monetary Fund (IMF) has lowered its growth forecasts for China and the euro area, citing low and uneven global growth despite the strength of the US economy. The IMF maintained its global growth forecast for 2023 at 3.0% but reduced its 2024 forecast to 2.9%. The IMF expressed concerns about risks such as the real estate crisis in China, volatile commodity prices, geopolitical fragmentation, and a resurgence in inflation. Inflation is expected to decline, but the IMF warned against easing interest rates too soon. The IMF raised its growth forecast for the US, while cutting estimates for China and the euro area.
The euro area economy grew by 0.3% in the second quarter, signaling a recovery after a decline in the previous quarter. Inflation in the euro area fell to 5.3% in July, with core inflation remaining unchanged at 5.5%. France's GDP exceeded expectations due to strong exports, while domestic demand indicators performed poorly. Business activity contracted at the fastest pace in eight months in July, and demand for business loans hit a record low. The European Central Bank raised interest rates but may pause further hikes in September. Inflation remains above the ECB's target of 2%.
Global equity markets rose, led by solid gains in US equities, as markets cheered the passage of a debt ceiling bill that averted a catastrophic US default. In addition, US data have been better than expected in recent weeks, according to the Economic Surprise Index. The market is now pricing in a 74% chance of a pause at the June 13-14 FOMC meeting, compared to 35% a week ago, after several Fed officials including the vice chair-designate pointed toward a ‘skip’ in June. In the coming week, US ISM Services PMI for May, along with China Caixin Services PMI for May on Monday. RBA interest rate decision and Euro area retail sales are due on Tuesday.