Societe Generale economists said the euro area is entering the latest energy shock with improved resilience and lower oil and gas intensity than in the past. Their NiGEM simulations suggested higher energy prices would cut euro area GDP by about 0.2\u20130.3pp in their baseline scenario.<\/p>\n
They expected the euro area recovery to strengthen after a weak period, supported by German fiscal stimulus, resilient consumption, AI-related investment and a housing recovery. They forecast GDP growth to run above potential over the forecast horizon.<\/p>\n
They projected the euro area public deficit to rise from 3.1% of GDP in 2024 to about 3.4% in 2025 and 2026, pointing to a mildly accommodative fiscal stance. Germany\u2019s public deficit was forecast to move from 2.4% of GDP in 2025 to 4.3% in 2026, with other countries also expected to use fiscal headroom.<\/p>\n
They said headline inflation was expected to be around 2% in 2027, and they did not expect immediate ECB action. They forecast 25bp rate rises in December 2026 and June 2027, with a risk these could be brought forward, possibly to June.<\/p>\n
Given the recent spike in energy prices stemming from tensions in Iran, we should not overreact as we did a few years back in 2022. Europe’s economy has become more efficient, with natural gas consumption relative to GDP down nearly 15% since that period. With current gas storage levels at 65% full, well above the five-year average, the continent is positioned to handle this shock without a major economic disruption.<\/p>\n
The underlying economic strength suggests we should be wary of betting against European growth. The German government’s recently confirmed \u20ac50 billion stimulus package, combined with resilient consumer spending, is expected to push GDP growth above its potential this year. We are emerging from a period of weakness, and this recovery looks set to gain momentum.<\/p>\n
From a rates perspective, the European Central Bank appears to be firmly on the sidelines for now. With the latest Eurostat data showing headline inflation holding steady around 2.1%, there is no immediate pressure for them to tighten policy. This suggests that volatility in the front-end of the interest rate curve may be overpriced.<\/p>\n
Therefore, we see the first ECB rate hike as a distant event, likely not occurring until December of this year. Selling volatility on near-term interest rate futures could be a viable strategy in the coming weeks. The main risk is that the ECB\u2019s June meeting could surprise the market if upcoming forecasts show a stronger medium-term impact from the current environment.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Euro area faces new energy shock resiliently; GDP impact limited; recovery strengthens; deficits rise; ECB hikes late.<\/p>\n","protected":false},"author":103,"featured_media":17022,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-46627","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