Fra Danske Bank:
Economic activity in the euro area continues to exceed expectations, reflecting moderate but steady growth driven by both the services and manufacturing sector before the war in Iran. The composite PMI rose to 51.9 in February from 51.3, outperforming expectations. Notably, the manufacturing PMI jumped to 50.8 from 49.5, marking its highest level since the ECB began rate hikes in 2022, signalling that the sector is no longer a drag on growth. Services PMI also increased to 51.9 from 51.6, which eased concerns of a continued downward trend. Due to the rise in energy prices, we expect to see a decline in the near-term PMIs and industrial production, but it is expected to be temporary.
Euro area unemployment reached a record-low of 6.1% in January, down from 6.3% in Decembe r, driven by a decline of 184k unemployed. Southern Europe has seen remarkable employment growth since 2021, with increases of 11% in Spain, 9% in Portugal, and 8% in Greece, compared to 3% in France (see chart 1). This strong labour market performance is fuelling private consumption, creating a virtuous cycle of rising employment and consumption. Despite this, wage growth in Southern Europe has remained in line with the euro area average, suggesting further scope for unemployment to decline . However, risks of rising wage growth persist as unemployment falls to record low levels and participation rates stay high. Yet, across the euro area, wage growth is cooling, with the ECB’s preferred measure, compensation per employee, standing at 3.7% y/y in Q4, below expectations of 3.9% y/y in the latest ECB staff projections.
Inflation in the euro area rose slightly above expectations in February as headline inflation reached 1.9% y/y (consensus: 1.7%) . Core inflation climbed to 2.4% y/y, supported by a rebound in core services inflation of 0.40% m/m s.a., following an unusually low 0.1% in January driven by temporary tax changes. Italian services inflation contributed to the surprise, as the Winter Olympics led to higher accommodation and transport prices, accounting for around 10bp of the rise in core inflation. With headline inflation undershooting the 2% target by less than feared in the start of 2026, it supports our view of an unchanged policy rate, even before accounting for the war in Iran’s effect on energy prices .
The war in Iran has pushed energy prices higher, raising euro area inflation expectations and ECB pricing with markets expecting a 25bp hike by the end of the year. Market based inflation expectations have also risen markedly, now averaging around 2.6% y/y for the rest of 2026, while medium-term expectations are still close to 2%. In the base case we expect the rising energy prices to be temporary with limited pass-through to core inflation. We therefore do not expect the ECB to raise the policy rate as growth is also hurt. For details see RtM EUR – Geopolitical inflation concerns , 6 March. However, we do see an upside risk to our call as communication from the ECB has highlighted that the ECB will not allow prices to rise like in 2022 and they are ready to act. The scars from the latest inflation crisis have likely lowered the threshold for when the ECB will act to upward price pressures even though the textbook reaction would be to “look through” the shock. If ECB hikes due growth would be hurt more.
Hurtige nyheder er stadig i beta-fasen, og fejl kan derfor forekomme.
