Euro-zone starts the year on a weak note

Hopes that the euro-zone economy will gather pace in the coming months are likely to be dashed. The latest business surveys point to growth stabilising but not recovering in the final quarter of last year. The slowdown over the past two years has been driven primarily by weaker external demand whereas domestic demand has held up quite well. We expect exports to remain sluggish until mid-2020 while household consumption and business investment are likely to slow. The recent increase in inflation (see Chart 1) means that there is less chance of any further policy support from the ECB in the near term. Nonetheless, we still think the Bank will ultimately be forced to loosen policy further, in order to comply with its price stability mandate.