Economic activity in the euro-zone seems to have remained sluggish in the first quarter of this year: we think GDP growth will be only 0.2% for a third successive quarter. This is largely due to weakness in the industrial sector, driven by softening external demand. Admittedly, some business surveys increased in February, but they remain at a level consistent with only lacklustre growth. The ECB has now acknowledged the extent of the slowdown and has unveiled another round of TLTROs and strengthened its interest rate guidance. But the Bank expects economic growth to rebound strongly in the second half of this year and to be over 1.5% next year, which we think is unlikely. Without a pick-up in activity, core inflation will probably stay well below 2%.
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