Eurozone: GDP growth could hit 3% y/y by the end of the year - Scotiabank

Alan Clarke, Head of European Fixed Income Strategy at Scotiabank suggests that they expect that Eurozone GDP growth will continue accelerating and could even hit 3% y/y by the end of the year.

Key Quotes

“Eurozone survey indicators are still extremely elevated and accommodative financial conditions suggest that they should stay that way at least until the end of the year. In turn, this should mean that GDP growth continues to accelerate throughout 2017. On paper, the relationship between output and survey indicators suggests that GDP growth could approach 1% q/q, with the annual rate accelerating towards 3% y/y by the end of the year. In turn, that would translate into an annual average growth rate of 2¼ to 2½%. The consensus and the ECB have belatedly shifted higher—albeit grudgingly. This cautious outlook may reflect scepticism that the elevated surveys will actually filter through into the hard activity data, particularly in the context of the stop-start nature of the eurozone recovery thus far. We expect growth of 2.3% y/y in 2017, followed by 2% growth in 2018.”

“Inflation is poised to decelerate over the remainder of the year, and could briefly fall below 1% y/y early in 2018.”

“Against the backdrop of inflation substantially below the 2% threshold, the ECB is likely to continue its programme of asset purchases through 2018, albeit at a decelerating pace.”