Latest surveys point to some improvement in economic activity, while inflation readings remain low.
Core inflation in the Eurozone declined last month to 1% only, reflecting weakness in both core goods inflation (-0.01% MoM) and weak core services (+0.01% MoM rise only).
Though unemployment is falling, and wage growth is picking up – especially in some regions – we continue to believe that overall slack remains abundant in the Eurozone economy. This implies a low inflation forecasts: we expect inflation to move sideways and do not anticipate the ECB to change its monetary stance.
As to economic activity, the final manufacturing PMI readings suggest some diverging trends. Growth in the Netherlands and Ireland picked up, signals of strong growth performance remain intact in Austria, France, Germany and Spain.
However, among peripheral economies, Italy’s readings are disappointing, with a current manufacturing reading at a two-year low – at 50.1, the index points to a very moderate expansion going forward.
Gero Jung - Chief Economist - Mirabaud AM