Euro area: Rising inflation but ECB will do more - Danske Bank

Research Team at Danske Bank, notes that the euro area recovery continues despite global growth weakness and financial turmoil.

Key Quotes

“Looking ahead we expect stronger support from investments but some loss of momentum in private consumption.

The unemployment rate remains on a clear downward trend and is only 0.5pp from the estimated structural level. When this level is reached, wage growth should pick-up, but slack in the labour market may delay this.

We expect inflation to increase sharply during the rest of the year as the drag from the oil price fades. Core inflation is set to remain subdued, hence the ECB should not conclude inflation is on a sustainable path to 2%.

The ECB will, in our view, prolong its QE purchases but in terms of rate cuts, we believe it has come to the end of easing. The QE extension is most likely after the summer as the ECB is now in implementation mode.”