“The tariff shock is unfolding more gradually, with a milder but more prolonged growth hit. The impact is also blunted by solid consumption, helped by falling rates and benign inflation. The ECB is now expected to look through the undershoot of its 2% inflation target. This means no further rate cuts on our forecast horizon, and the deposit rate holding at 2% for the foreseeable future. The eurozone proved more resilient than expected in Q2, with the economy eking out growth of 0.1% q/q, following the 0.6% jump in Q1; we had expected a small contraction reflecting the unwinding of US export frontloading in Q1. While that unwind is happening, it is unfolding more gradually than expected. A number of factors likely explain this.”
Morten W. Langer
