Eurozone: Finally, Ready For Take-Off

With the accelerated reopening of the economy, the eurozone is heading for a strong upturn. While price increases are grabbing headlines, core inflation remains subdued.

Although the European Central Bank is in wait-and-see mode, we think the PEPP is unlikely to be lengthened beyond March 2022, but too strong a drop in bond purchases will be avoided.

Open for business

With vaccination rates rising steadily, COVID-19 infection rates are falling rapidly, leading many European governments to reopen the economy.

As parts of the economy that were partially closed begin to reopen, the second quarter should show decent growth. On top of that, European Union member states are putting schemes in place that should allow for a better tourist season this year, although we don’t expect things to go back to 2019 levels just yet. There are indeed supply disruptions in several manufacturing sectors that are hampering production, but this will probably be compensated by the robust activity in services sectors.

Economic and inflation surprise index

Refinitiv Datastream 

Reasons to be cheerful

There is still very little hard data for the second quarter, apart from disappointing April eurozone retail sales in April and a weak German industrial production reading. But then again, April was a month of tighter lockdown measures.

In May, the sentiment indicator in the retail sector rose to the highest level since December 2019, probably reflecting healthy consumption growth. The same goes for most recent confidence indicators, like the PMI or the European Commission’s economic sentiment indicator - all showing strong readings for May. Admittedly, in extreme circumstances, these indicators, mostly based on a balance of opinion between optimists and pessimists, should be interpreted with some caution, but it seems safe to say that the recovery is gaining speed.

We are now looking at 4.4% growth this year and 4.0% next year

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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