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3 Dec 2014
Europe enters deflation risk zone – Nomura
FXStreet (Barcelona) - Jacques Cailloux, Chief European Economist at Nomura believes that ECB policies will have little impact on the European economy as downside risks look strong in the medium term.
Key Quotes
“The euro area has been slowing down since June. The slowdown has been led by core countries and is now impacting the periphery as well. Q1-Q3 GDP averaged 0.2% q/q . Q4 is tracking 0.2% q-o-q with downside risks. We believe the Russian crisis took 0.2/0.3pp off euro area GDP this year. Our business cycle tool “Galileo” signals high risks of continued slowdown until year end although the October reading point to first signs of stabilisation. Consensus forecasts for 2015 have almost fully converged to our longstanding 1% forecast.”
“Medium term, risks remain to the downside as income generation remains too low to lift the region out of deflation zone. We remain significantly below the consensus on inflation, forecasting euro area inflation of 0.5% in 2015 and 0.7% in 2016 (Bloomberg median 1.0% and 1.40%, EC: 0.8% and 1.5%, ECB 1.1% and 1.4% for 2015 and 2016 respectively).”
“The ECB has delivered a broad package of measures to ease policy, reinforced forward guidance and implemented measures to support lending to the real economy. We believe that the ECB policies will have little impact on the economy.”
“ECB to embark in sovereign bond purchases in H1 2015 as inflation expectations drift lower and the ECB struggles to grow its balance sheet rapidly enough. We expect the ECB to purchase public and private sector assets at a monthly rate of Eur40bn by June next year when all programmes are in place.“
Key Quotes
“The euro area has been slowing down since June. The slowdown has been led by core countries and is now impacting the periphery as well. Q1-Q3 GDP averaged 0.2% q/q . Q4 is tracking 0.2% q-o-q with downside risks. We believe the Russian crisis took 0.2/0.3pp off euro area GDP this year. Our business cycle tool “Galileo” signals high risks of continued slowdown until year end although the October reading point to first signs of stabilisation. Consensus forecasts for 2015 have almost fully converged to our longstanding 1% forecast.”
“Medium term, risks remain to the downside as income generation remains too low to lift the region out of deflation zone. We remain significantly below the consensus on inflation, forecasting euro area inflation of 0.5% in 2015 and 0.7% in 2016 (Bloomberg median 1.0% and 1.40%, EC: 0.8% and 1.5%, ECB 1.1% and 1.4% for 2015 and 2016 respectively).”
“The ECB has delivered a broad package of measures to ease policy, reinforced forward guidance and implemented measures to support lending to the real economy. We believe that the ECB policies will have little impact on the economy.”
“ECB to embark in sovereign bond purchases in H1 2015 as inflation expectations drift lower and the ECB struggles to grow its balance sheet rapidly enough. We expect the ECB to purchase public and private sector assets at a monthly rate of Eur40bn by June next year when all programmes are in place.“