Stronger Cyclical Momentum; Be Patient on Inflation

Gero Jung -

Last quarter GDP growth was solid, in line with expectations as well as leading indicators. In the details, a strong contribution came from Germany (+0.2ppt of quarterly growth), France (0.1ppt), the Netherlands and Spain (0.05ppt), confirming a broad-based recovery.

This is likely to support a further reduction in the Eurozone’s output gap and longer-term inflation expectations. We continue to expect a continuation of the current expansion, with resilient exports, despite the euro appreciation. Domestic demand is bolstered by lower unemployment, exemplified by a strong improvement in the French unemployment rate (-0.7 ppts).

Finally, if we accept the hypothesis of a non-linear Philips curve – i.e. the negative correlation between inflation and unemployment rate – we consider the recent pay deal achieved by a major trade union in Germany as a good indicator of higher bargaining power for employees implying an acceleration in
wage growth in the future with significant, but moderated, implications on core inflation in 2018.


Gero Jung – Chief Economist – Mirabaud AM