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8 EU Countries Facing Deflation
World Economy

8 EU Countries Facing Deflation

Deflation, deflation, deflation. It was the doomsday mantra of 2014, and nowhere was it sung louder than in growth-starved Europe. As of just a few weeks ago, economists surveyed by Bloomberg News were convinced 2015 would be the first year since 2008 that no country saw annual deflation. No longer.
Following a month marked by a further collapse in oil prices, Syriza’s election victory in Greece and disappointing euro-area price data, economists are back to whistling the deflation tune.
In all, eight European countries will move closer to deflation this year, according to economists’ yearly and quarterly forecasts. For several of these countries — Bulgaria, Croatia, Greece, Poland, Spain and Sweden — falling prices have been the norm for at least six months of last year. Belgium, Estonia, Germany and Thailand are not expected to see deflation on a quarterly or annual basis, but they have already seen price drops in January.
For others, deflation may be more of a flirtation than a long-term state of affairs. Consider Italy and the euro area overall, where consumer prices are expected to fall by between 0.1 percent and 0.2 percent in the three months through March but end the year marginally higher. New European Commission forecasts published on Feb. 5 are more pessimistic and predict average price deflation for both Italy and the euro area for all of 2015.
Not officially on our list but still in the deflation danger zone is the United States: Bank of America Merrill Lynch forecasts a 0.5 percent average drop in US consumer prices this year even as its strategists predicted “victory” in global central banks’ war on deflation in a Feb. 4 note.
Rounding out the top 10 (most at risk of deflation) is Switzerland, which will likely supplant Bulgaria as the world’s most deflationary country. The alpine exporter of watches and pharmaceuticals was already struggling with flat-lining prices — inflation averaged 0.2 percent in 2014, according to Bloomberg calculations — when the Swiss National Bank surprised everyone on Jan. 15 by scrapping its three-year currency cap. The resulting deflationary shock, according to recent Deutsche Bank and Rabobank research notes, means prices may fall by as much as 1.5 percent this year for Swiss consumers.

 

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