Policymakers running out of ammunition

The euro-zone’s gradual recovery appears to be slowing as we had warned as boosts from the euro’s depreciation and falling oil prices fade. However, the ECB has hinted at limits to its future policy support and the euro-zone region will continue to suffer the effects of previous fiscal consolidation. Other European central banks are also hitting policy constraints and are reliant on foreign exchange intervention to ease deflationary pressures. This all suggests that growth and inflation will remain very weak in the medium term and that the peripheral economies will struggle to reduce their debts.