Euro area’s lacklustre growth continued in Q2 - RBC

"Euro area GDP fell short of expectations with a 0.3% increase in Q2, which is down slightly from the previous quarter’s 0.4% gain," note Royal Bank of Canada Economic Research team in their monthly financial markets report.

Key quotes

"That leaves growth over the first half of the year at roughly half of 2017’s pace. A slowdown in France, the currency bloc’s second largest economy, was partly to blame. That reflected some temporary factors that we think will be reversed in the coming quarters. Survey data continue to point to a slightly stronger backdrop, and we expect growth will rebound to a 0.5% pace in the second half of the year."

"While that would still be down from last year, it represents an above-trend rate (in contrast to the first half of 2018) that should further absorb slack in the economy. Euro area inflation rose above 2% for the first time since 2012 though core inflation remains well below the European Central Bank’s target. The recent, albeit modest, pickup in wage growth supports the ECB’s expectation that underlying inflation will firm over the medium term."

"The central bank’s policy path has been more or less set out for the coming months—net asset purchases will be trimmed to zero by the end of this year and rate hikes are off the table at least through next summer. If growth improves over the second half of the year as expected we think the ECB will begin raising interest rates in the third quarter of 2019."

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