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Missing the global tightening cycle

The euro-zone should regain some momentum in the coming months, at least compared to its dire performance at the end of last year. But we think the economy will expand by just 1% in 2019 as a whole. Demand in key export partners is set to slow further, particularly if we are right in expecting the US economy to lose steam later this year. Business investment has come off the boil and will be held back by the weak global backdrop. And household consumption looks set to increase at only a moderate pace, despite the drop in energy prices, because consumer confidence has fallen and households are likely to increase their savings. All of this means that core inflation will stay close to 1%, rather than converging towards the ECB’s target, and that policymakers will leave interest rates on hold this year and next – missing the global tightening cycle completely.

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