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EMU CommentSlower growth, subdued inflation shows euro area struggles

  1. Slower GDP growth illustrates euro area struggle
  2. Inflation remains subdued, unemployment stays flat
  3. Concerns over recent data feeds expectations of fresh stimulus from the ECB
Slower GDP growth illustrates euro area struggle
Preliminary data on GDP growth for the eurozone in the second quarter fell to 0.2 percent q-o-q, from 0.4 percent previously, and also decreased in y-o-y terms to 1.1 percent from 1.2 percent last quarter. This was in line with (or slightly above) expectations in q-o-q (y-o-y) terms. Although this release lacks detailed breakdowns, yesterday's disappointing French GDP growth for Q2 was, to a large extent, driven by tepid household spending. As seen in the first graph, the slow rate of growth is consistent with the slide in manufacturing (PMI) and comes despite the pickup in recent months in the service sector (PMI). The ongoing slowdown in growth is consistent with our forecasts spelled out in our latest April Global Macro Forecast.
Inflation remains subdued, unemployment stays flat
The flash annual consumer price index y-o-y was, as expected, lower at 1.1 percent in July, compared to 1.2 percent a month ago, whereas core inflation fell below expectations to 0.9 percent y-o-y compared to 1.1 percent last month. Meanwhile, unemployment remained flat at 7.5 percent for June, in line with expectations.
Concerns over recent data feeds expectations of fresh stimulus from the ECB
Mounting evidence of a euro area slowdown supports our case that the ECB will implement additional stimuli during the remainder of the year. Earlier this month, we revised our 2019 forecast for the ECB and now expect it to lower its deposit rate by 10bp in September. We also see an increasingly likely possibility that the bank will reintroduce a version of quantitative easing (QE) in H2.

Euro Area GDP growth (qoq)


 Euro Area Headline and Core inflation (yoy)


Disclaimer
 Erik Meyersson

Erik Meyersson

Senior Economist

Eurozone

erme03@handelsbanken.se

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