Eurozone: Solid and stable growth likely to be confirmed with the final January PMIs - BBH

In view of the analysts at BBH, Eurozone growth is solid and stable, and above trend, which is estimated near 1.25%.  

Key Quotes

“This is likely to be confirmed with the final January PMIs due in the second half of the week ahead.  Individual countries will update Q4 16 GDP estimates, and most likely will not have much market impact, but will be revealing nonetheless.  The Spanish economy motored ahead by 3.0% year-over-year in Q4 16.   France and Italy both appear to have grown 1.1%.  Among other European countries reporting GDP, Sweden's 1.9% puts it a little ahead of Germany's 1.7%, while Switzerland's 1.2% places it nearer France and Italy.”

“The risks of deflation have evaporated in Europe thanks to the rise in oil prices.  Indeed, the preliminary estimate for February CPI, which is to be reported on March 2, is expected to tick up to 1.9-2.0%.  The higher oil prices have knock-on effects on transports, heating, and energy prices.  It was also unseasonably cold in southern Europe, which may have underpinned unprocessed food prices as well.  In any event, core prices are expected to be flat at 0.9% for the third month and have seen a steady pace of 0.8-0.9% since last May.  It bottomed at 0.6% in January 2015.”

“Many observers do not appreciate the importance of the faster increase in Germany inflation than elsewhere in the monetary union.  Germany's headline harmonized measure may push above 2.0% in February and will be reported ahead of the aggregate figures.  There are a number of ways that countries can boost their competitiveness against Germany.  Draghi pushes for structural reforms in both Germany and elsewhere, but that is proving a difficult to achieve.” 

“Another way is through the inflation differential.  Several years ago, it was thought desirable that the periphery has lower inflation than Germany.  However, Germany was experiencing disinflation and sometimes outright deflation.  This forced deflationary condition on others.  However, Germany now has higher inflation, even above target, and this is a net positive for the periphery, though the real impact requires this to be sustained.”