ECB continues to predict a growth pick-up across the euro area
Euro-wide deflation isn’t inevitable, but it is a material risk. The smaller periphery countries are already in deflation and without a sustained economic recovery, some of the larger countries (notably Spain) could follow. The ECB is hoping for an economic recovery in 2014 that will alleviate these pressures. But if the forecasts prove too optimistic and the economy stagnates – our own baseline – the ECB must be prepared to look at more radical policy options. There is a clear risk it waits too long. (LSR Macro Picture 27th March 2014)
Euro area growth stabilises but at very low levels, inflation expectations and measures continue to fall. Speculation grows that QE is the only policy response that will control market expectations.