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Edition November 10, 2017 - Crédit Agricole S.A.
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  • Edition November 10, 2017

    Eurozone – Outlook 2017-2018: Reconfiguration of expectations

    Eurozone growth is strengthening and was moving along at an annual rate of over 2%. The Eurozone thus looks set for another year of above-potential growth driven by a favourable global environment. These positive surprises as regards growth could encourage economic agents to upgrade their prospects, having in recent years been used to their successive downward revisions. However, the euro's recent appreciation has brought some shadow on this perfectly justified optimism-tinted scenario.

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  • Contents:

    - Overview
    - Focus 1: The ECB and the missed inflation target
    - Focus 2: Will euro appreciation hurt growth?
    - Recent activity trends
    - 2017-2018 Outlook : Reconfiguration of expectations

  • Extract:

    The ECB knows that it is now behind the curve. Progressive improvement in GDP growth calls for a progressive retreat from the ultra-accommodative monetary stance. But inflation is not where it should be to justify such a retreat although the deflationary risk has disappeared and risks are nox more balanced. But if the transmission channel from monetary policy to aggregate demand is working, the one from aggregate demand to inflation is less effective. Slack in the labour market explains the weaker relation between unemployment and wage growth observed in recent years. Structural factors, such as a more flexible labour market with temporary jobs and reforms to wage-setting mechanisms also contribute to a flattening of the Phillips' curve and to the weakening of the activity-inflation link. The decline in structural unemployment due to labour market reforms and a de-anchoring of inflation expectations have also shifted the Phillips curve downwards.

  • EMU growth supportive factors

    Despite the downward revision to our forecast, the uptrend in the oil price is progressively weakening a European growth driver but is reinforcing the overall cycle by promoting the recovery of oil producers. The Fiscal momentum is still positive, while the extremely accommodative monetary stance remains a vital (while dwindling) support factor. Positive euro support in the past has now become a headwind.

    EMU growth supportive factors
  • Associative topics : Economics | Europe


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