Euro area – Rising optimism
Growth has exceeded expectations, and the labour market remains resilient. The EU-US trade deal has reduced a significant downside risk to the economic outlook. We expect growth to be muted in the second half of the year before gaining momentum in 2026. This year, we perceive the risks to the economic outlook as tilted to the downside, while they are balanced next year.
Inflation has been fluctuating around the 2% target in recent months, and we expect this to continue through 2025 before falling below target next year. Core inflation remains above target, and we anticipate it will stay elevated until spring next year. We consider the risks to the inflation outlook as balanced.
The ECB has reached its terminal rate of 2%, and we expect no changes within the forecast horizon. We perceive the risks to our forecast as tilted to the downside in the near term due to growth concerns. However, we see upside risks towards the end of 2026, driven by fiscal policy.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
