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Euro growth to improve slowly, but remain weak – GS

The Goldman Sachs Research Team forecast the GDP growth for the Euro area and sees growth gradually picking up as we head into 2015.

Key Quotes

“Our Euro area forecast implies that GDP growth will improve slowly in the coming quarters but nevertheless remain sluggish. On the positive side, we expect some of the factors that held the economy back this year to prove temporary, and we think that some of the deeper headwinds that the Euro area faces will ease at the margin.”

“Set against this, however, those headwinds remain brisk and we expect this to restrain the recovery. Outside of the Euro area, we expect growth to be stronger, but to be curtailed by the weakness of Europe’s largest economy.”

“While we expect inflation to remain undesirably weak for some time, we nevertheless think the risk of a sustained period of outright deflation across the Euro area is limited, for two reasons.”

“First, reflecting the structural rigidities in Euro area labour markets and despite high levels of unemployment, domestic cost pressures in the Euro area remain consistent with low but positive inflation. Second, the cross-country evidence suggests that deflation is rare and difficult to generate among countries that set monetary policy independently.”

“Given weak growth and weak inflation, we expect the ECB to maintain Euro area overnight rates (EONIA) at close to their current levels (between 0% and -0.05%) until 2017Q3. We also expect the ECB to announce further easing measures in the coming months, extending and deepening the T-LTRO, covered bond and ABS purchase programmes that it has already announced.”

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