Nomura forecasts euro area GDP growth to rise in 2026\u20132027 and run at about 1.7\u20131.8% year-on-year from Q2 to Q4 2027. Estimated potential growth is about 1.1\u20131.2% year-on-year, and growth above that level is linked in the note to higher domestic inflation pressure.<\/p>\n
The forecast is said to be close to the ECB consensus in 2026, but higher in 2027. Nomura puts its 2027 GDP growth rates at around 0.3\u20130.4 percentage points higher per quarter than the consensus or the ECB.<\/p>\n
Stronger growth is mainly attributed to Germany and Spain, including larger effects from German fiscal measures than in consensus estimates. For Spain, Nomura forecasts GDP growth of 2.6% this year and 2.7% next year, versus consensus forecasts of 2.2% and 1.9%.<\/p>\n
The note adds that spare industrial capacity in Germany and underemployment in sectors expected to benefit from fiscal measures could limit inflation pressure. It also describes conditions resembling a pre-financial crisis setting, with tight labour markets, unemployment below equilibrium, and GDP growth above potential (using 1.1% as potential growth).<\/p>\n
We are anticipating Euro area GDP growth to quicken throughout 2026 and 2027, reaching a pace of 1.7% to 1.8%. This level of growth is well above the estimated potential of about 1.1%, which is expected to fuel domestic inflation. Consequently, positions should be considered for a more hawkish European Central Bank, as they may need to raise rates to cool the economy.<\/p>\n
Recent data already supports this view, as the January flash inflation estimate ticked up to 2.5%, surprising the market. Furthermore, the unemployment rate has just fallen to a new low of 6.3%, a level not seen even in the tight labor market conditions preceding the 2008 financial crisis. This suggests very little slack is left in the economy to absorb the coming growth without price pressures.<\/p>\n
In the rates market, this outlook suggests it may be advantageous to enter into interest rate swaps where we pay a fixed rate and receive a floating one. As the ECB responds to inflation, short-term floating rates like EURIBOR are likely to rise, making this a profitable position. Selling short-term interest rate futures would be another direct way to express this view.<\/p>\n
For the currency market, the prospect of higher interest rates should strengthen the Euro, making the purchase of call options on the EUR\/USD an attractive strategy. This provides upside exposure if the Euro appreciates against the dollar. Similarly, the strong growth forecast, particularly driven by Germany and Spain, creates a bullish case for European equities, suggesting long positions in EURO STOXX 50 futures.<\/p>\n
However, we must remain mindful of the spare industrial capacity and underemployment in Germany, which could partially absorb this growth and temper inflation. This uncertainty over the exact timing and magnitude of the ECB’s response could lead to increased market choppiness. Therefore, buying volatility through options on the VSTOXX index could be a prudent way to hedge against unexpected market swings in the coming weeks.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Nomura expects euro area growth to accelerate above potential in 2026\u20132027, driven by Germany, Spain.<\/p>\n","protected":false},"author":62,"featured_media":17027,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-41594","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t