Euro area economy likely slowed in Q2; inflation expected to have remained stable in July

The euro area economy is expected to have decelerated in the second quarter. According to a Societe Generale research report, the currency bloc’s GDP growth is likely to have slowed to 0.3 percent quarter-on-quarter in the second quarter from the previous quarter’s growth of 0.6 percent. All the four major national economies in the euro area are likely to have a uniform picture of deceleration.

The German economy is likely to have recorded 0.2 percent growth on sequential basis due to subdued data for retail sales and industrial production, noted Societe Generale. Meanwhile, the Italian economy is likely to have grown just 0.1 percent. France’s hard data came in slightly better in the second quarter. Thus the economy is likely to expand 0.3 percent. The euro area economic growth is expected to average 1.6 percent year-on-year in 2016 and decelerate to 1.3 percent next year, stated Societe Generale.

Meanwhile, inflation in the currency bloc is expected to have remained stable in July at 0.1 percent year-on-year. On an annual basis, energy prices are expected to have remained stable despite a monthly decline. Food prices are also expected to have been stable for the third straight month.

Moreover, core inflation is likely to have remained stable in July at 0.9 percent as services inflation is anticipated to have rebounded mildly. Non-energy industrial goods prices are expected to have further softened to 0.3 percent year-on-year. In the future, euro area’s inflation is expected to begin rebounding markedly. The improvement is likely to be led by base effects from energy prices.

“Headline inflation is expected to average 0.4 percent in 2016 and 1.5 percent in 2017, while the core metric should average 1.0 percent in 2016 and improve marginally to 1.1 percent in 2017,” added Societe Generale.