Fra Danske Bank:
The euro area economy grew faster than expected in 2025, little affected by US tariffs. The composite PMI remained above 50 throughout 2025, driven by a stabilisation in manufacturing and a strong service sector. While growth slowed in December, Q4 performed strongly, with sustained service sector activity offsetting manufacturing’s return to contraction. Manufacturing struggled, with its December PMI falling to 48.8 and production declining for the first time in 10 months, while the service sector maintained growth momentum, with a PMI of 52.4. However, the Q4 composite PMI averaged 52.3, the highest since 2023, suggesting solid quarterly growth . Supporting this outlook, the EuroCOIN indicator (produced by Bank of Italy) for December point to a 0.5% q/q real GDP growth in Q4, exceeding ECB staff projections of 0.2% q/q GDP growth (see chart). Both PMI and EuroCOIN reinforce the ECB’s “good place” assessment , though manufacturing recovery is vital for sustained growth in 2026.
The ECB concluded 2025 by keeping its key policy rates unchanged at the December meeting, with the deposit facility rate at 2.00%, aligning with expectations. 2025 began with the deposit rate at 3.00%, but a series of cuts brought it to 2.00% in June, where it has since remained. December’s meeting brought upgraded economic growth projections, delivering a hawkish surprise to markets. The new staff projections showed upwards revised growth across the projection horizon, alongside higher inflation expectations for 2026. GDP forecast increased to 1.2% y/y in 2026 (from 1.0%) and 1.4% y/y in 2027 (from 1.3%). At the same time headline inflation was revised to 1.9% y/y (from 1.7%) in 2026 and core inflation to 2.2% y/y (from 1.9%). For more details see ECB preview – In an even better place , 18 December. We expect the ECB to keep the policy rate unchanged at 2.00% through 2026-2027, and risks remain balanced; weaker inflation may prompt easing, while stronger growth could lead to higher rates.
Headline and core inflation started 2025 at 2.5% y/y and 2.7% y/y, respectively, and steadily declined throughout the year, largely due to lower energy prices and declining underlying inflation pressures. However, elevated service inflation remains a key concern. By December, headline inflation declined to 2.0% y/y down from 2.1% in November, aligning with expectations and matching the ECB’s target. Core inflation eased to 2.3% y/y from 2.4% y/y, driven by weaker-than-expected goods inflation. Service inflation declined slightly to 3.4% y/y but with momentum consistent to recent months, it remains sticky and a key argument for the hawk camp in the ECB. The recent decline in energy prices has lowered market expectations for Q1 2026 inflation to 1.6%, well below ECB projections of 1.9% (see chart). Combined with weaker December inflation, this has sent rates lower with markets now pricing 5bp worth of cuts from the ECB by July. We expect inflation to fall below 2% in both 2026 and 2027, as wage growth eases and weak energy and food commodities prospects, combined with base effect, are expected suppress headline inflation in 2026.
Hurtige nyheder er stadig i beta-fasen, og fejl kan derfor forekomme.