As good as it gets?

While the European economic recovery probably picked up a bit of speed in the second quarter of the year, there are growing signs that Q2 was as good as it is likely to get. Activity indicators in the euro-zone have softened again in the last few months, with even the recovery’s main engine – the German industrial sector – losing steam in the face of weak demand and the strong euro. Against this background, inflation looks set to remain at very low rates in the currency union, hindering fiscal consolidation efforts in the indebted economies and sustaining the threat of a Japanese-style bout of deflation in the absence of more decisive action from the policymakers.