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Euro-zone GDP barely grew in Q4, inflation risks rise

Data released this week suggest that our assumption that euro-zone GDP rose by 0.2% in Q4 could be too optimistic, but we still think that the economy will grow in Q1. Meanwhile, rapid house price inflation adds to the case for the ECB to, in Jay Powell’s words, start thinking about thinking about raising interest rates.
Jack Allen-Reynolds Senior Europe Economist
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European Economics Update

Answers to your questions on the ECB

We held a Drop-In today to discuss our views on the ECB and what the chances are of a further hawkish surprise in the coming weeks. (You can see an on-demand recording here.) This Update answers several of the questions that we received, some of which we couldn’t answer during the event.

24 May 2022

European Economics Update

Rising interest costs add to pressure on EZ households

We estimate that euro-zone households’ debt interest payments will quadruple as a share of income over the next couple of years as the ECB raises its policy rate. This will put yet further strain on households which are already struggling with higher costs and as such weigh on economic growth. ECB Drop-In (24th May 10:00 ET/15:00 BST): Could the ECB deliver a hawkish surprise? Join economists from our Europe and Markets teams for a discussion about what to expect from the Bank’s tightening cycle, including the chances for a bumper hike in July or even an early move at next month’s meeting. Register now.

24 May 2022

European Data Response

Euro-zone Flash PMIs (May)

The small fall in the euro-zone Composite PMI in May suggests that activity is holding up better than we had feared. But the services rebound is likely to run out of steam amid high inflation and the drop in new orders bodes ill for industry. So GDP growth is still likely to be weak for much of this year. ECB Drop-In (24th May 10:00 ET/15:00 BST): Could the ECB deliver a hawkish surprise? Join economists from our Europe and Markets teams for a discussion about what to expect from the Bank’s tightening cycle, including the chances for a bumper hike in July or even an early move at next month’s meeting. Register now.

24 May 2022

More from Jack Allen-Reynolds

European Economics Update

Rate hikes might not spell the end of ECB QE

We doubt that “fiscal dominance” – worries about the impact of higher interest rates on debt sustainability – would stop the ECB from raising interest rates. But it might encourage the Bank to backstop the bond market even after raising rates by committing to re-start asset purchases if needed.

11 January 2022

European Data Response

EZ Unemployment (Nov.)

Unemployment in the euro-zone fell again in November, and timelier data suggest that there have been further improvements since then. While there has been less of a hit to the workforce in the euro-zone than in the US, firms report that labour shortages are constraining production.

10 January 2022

European Data Response

Euro-zone Flash HICP (Dec.)

After reaching 5.0% in December, headline euro-zone inflation should fall this year as the energy component plummets. But we think that core inflation will remain around 2%.

7 January 2022
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