Euro area's economic resilience removes 'near-term justification' for further ECB

Euro Area inflation has stabilised near the 2% target in recent months, while economic activity seems to be picking up. The third quarter GDP report surprised to the upside, with the economy expanding by 0.3% QoQ, an acceleration from the modest growth posed in Q2. The latest business activity PMI data indicates that growth has accelerated further since. The key composite PMI rose to 52.8 in November, its highest level since May 2023, driven by a strong recovery in the services sector.

ECB officials have begun to openly acknowledge this improvement in economic conditions. President Lagarde noted that the economy was proving more resilient than the bank had anticipated during her communications last week, pointing to a more muted than expected impact of US trade tensions. She also hinted that the bank will, yet again, raise its forecasts for growth during this week’s meeting, which we take to mean that it is all but assured.