No deflation, but lowflation to continue in the euro area

By the turn of the year 2015/2016, headline CPI is forecast to break just above 2%, but this will be short-lived driven by base effects from the oil price. As we discuss in Box 8 - Not yet out of the woods for lowflation, a slow closing of the output gap coupled with gradual reform of the non-tradable sector and structural changes to the wage formation process, notably in the periphery are expected to keep the euro area in lowflation, according to Societe Generale. 

Longer-term, it is important to recognise that reform today, be it on product, service or labour markets, or to broader institutional arrangements should come with better growth outcomes in the future.

The reform process remains too slow to lift trend potential sufficiently, says Societe Generale.