Recent hard data for the euro-zone have generally been encouraging. Despite falling in November, the level of retail sales remains fairly high after a strong rise in October. And while industrial production edged down in October, timelier national data suggest that output rose in November. Surveys suggest that activity was also robust in December, with the Composite PMI hitting a 67-month high. Its average over Q4 is consistent with quarterly GDP growth of 0.4%, a step up from Q3’s 0.3% expansion. But the apparent pick-up in growth is unlikely to be sustained. In particular, higher energy inflation will weigh on households’ real income growth, which in turn will dampen consumption growth.
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