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Jan von Gerich, analyst at Nordea Markets, suggests that even as the Euro-area GDP continues to grow, the pace of growth is not enough to lift inflation to the ECB’s target.

Key Quotes

“The preliminary flash estimate showed Euro-area GDP expanding by 0.2% q/q in the second quarter of the year, down from 0.4% in Q1 but in line with expectations.  Growth in Q1 was clearly a positive surprise, and taken together, the GDP data from the first half of the year still point to an economy clearly in a phase of expansion, even if the pace is rather slow.”

“If growth continued at the 0.2% pace in the second half of the year, roughly in line with the recent composite output PMI,  GDP would grow by a bit more than 1% in 2019 as a whole, which is not a disaster but not really enough to bring inflation back to the ECB’s target.”

“GDP growth slowed from 0.3% q/q to 0.2% in France and from 0.7% to 0.5% in Spain. No estimate was provided for Germany at this point.”

“While the GDP numbers were in line with expectations,  core inflation surprised to the downside once more.  Inflation excluding energy, food, alcohol and tobacco fell from 1.1% y/y to 0.9%, still failing to show any meaningful uptrend. The unemployment rate still edged lower to 7.5% in June, but  the slowdown in growth will probably mean also the unemployment rate is close to bottoming.”

“Given the absence of an uptrend in core inflation, weak GDP growth and the growth risks firmly pointing to the downside,  the ECB looks likely to announce an entire package of stimulus measures at the September meeting.”