Eurozone Growth Momentum Peaks

Eurozone economic momentum has peaked, according to a majority of economists in a Reuters poll who also said the European Central Bank will drop its easing bias on stimulus by or at the June meeting.

The region’s economic performance has been robust and in 2017, gross domestic product rose 2.5%, the fastest growth rate since a 3% rise in 2007, Reuters reported.

But the latest poll of 80 economists taken Feb. 26-28 showed the economy is expected to lose some of that momentum on the euro’s strength and inflation was expected to remain well below the central bank’s target over the next two years at least.

More than 70% of 51 economists who answered a separate question said the peak of growth momentum in the eurozone was now in the rear-view mirror.

“We expect annual GDP growth to edge down slightly this year from Q4’s very strong pace. The PMI surveys support this view,” noted Jennifer McKeown, chief European economist at Capital Economics.

While eurozone business growth was the fastest in well over a decade at the start of the year, it lost some steam last month as a stronger currency took its toll, a private-sector survey of purchasing managers showed.

Still, over 70% of respondents in the latest poll said they were not concerned the economic boom would be over by the time the ECB starts to consider raising interest rates.

“We think that growth will be slower by the time the ECB raises rates. We do, however, think that the eurozone will still be expanding at a solid pace,” noted Andrew Harris, economist at Fathom.

Full-year GDP growth was expected to average 2.3% this year and 2% next, compared to 2.3% and 1.9% respectively in the previous poll. Quarterly growth is set to slow from 0.6% to 0.4% in Q2 2019.

While growth is well into its fifth year and is now showing some signs of slowing, official flash data on Wednesday showed headline inflation also slipped to a 14-month low in February.

ECB President Mario Draghi said on Monday the factors holding back inflation were temporary and prices will eventually rise.

But inflation was forecast to average 1.5% this year and 1.6% next, well below the target of just under 2%. The consensus was for it to range between 1.3 and 1.6% in each quarter through to the end of next year.