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There is no shortage of problems at present for the Eurozone and the list includes deep-seated concerns about immigration, a broadening trend toward populist politics, heightened tensions about global trade along with lingering macroeconomic imbalances and festering structural fragilities, according to analysts at Nomura.

Key Quotes

“All the while the world economy was in good shape and the region could enjoy the fruits of a strong and synchronised expansion in global growth many of those problems could be ignored. But as darker clouds have gathered over the world economy these problems are coming into sharper focus and raising concerns about the region’s longer-term viability.”

“To be clear, we believe the eurozone and the broader European Union will remain intact for the foreseeable future. But the key caveat to that view is that, absent more compelling reforms, high levels of ECB accommodation will almost certainly be required. And that raises the question that heads up this note, will the ECB ever hike rates again?”

“Our answer is yes but it’s a yes with less conviction than we’d like. We’re formally forecasting a hike of 15bp in the deposit facility rate in September 2019 followed by a further increase of10bp in all policy rates in Q4 2019 (marked down from a previous forecast of 25bp).”

“But we doubt that policy rates will be lifted too much thereafter – indeed we are only pencilling in one more 10bp hike into our 2020 outlook and specifically in Q2. And at the moment we would stress the risks to that 2020 view are tilted to the downside.’