Eurozone: Underlying health of the economy should display resilience in coming quarters - Wells Fargo

According to analysts from Wells Fargo, growth prospects could remain subdued in the near-term in the Eurozone; however, they consider the expansion should remain intact. They look for two 20-bp rate hike increases from the European Central Bank in the deposit rate in Q3 and Q4 2019.

Key Quotes: 

“Real GDP growth in the Eurozone has downshifted so far this year after the more solid pace of growth seen in 2017. Several countries saw outright contractions in output in the third quarter, and while some of the weakness was likely due to temporary factors, the recent stagnation has led many to question the durability of the present expansion. But in our view, the underlying health of the Eurozone economy should display resilience in coming quarters.”

“While the ECB has remained accommodative amid continued sluggish price pressures and the recent growth slowdown, we still look for it to wrap up its bond purchases at the end of this year before beginning to slowly raise rates from the fall of 2019. Price pressures should slowly pick up as labor costs continue to rise and monetary policy becomes tighter after several years of historically low interest rates.”

“While we look for the ECB to remain on hold this week, we still look for further monetary policy normalization in 2019, assuming the inflation and growth picture improve in coming months.”