ECB to keep pushing on a string

We expect economic growth to remain sluggish this year as external demand picks up only slowly and domestic demand softens. Employment growth is slowing, which will cause household incomes and spending to weaken, and investment intentions have slumped. Germany’s industrial recession looks set to persist during the first half of the year, and its services sector to lose momentum. Meanwhile, Italy is still close to recession, but France and Spain should continue to outperform. We suspect that core inflation will drop back to around 1% over the coming months, prompting the ECB to ease policy in the second half of the year.