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BofAML _ perspectivas economía europea

Redacción - Viernes, 19 de Mayo

Europe Economic Weekly: Spook me not •  Recent ECB comments may be an attempt to prepare markets for exit without spooking them. We still expect exit to be gradual. •  Inflation prospects are too low for quick exit, even if the growth cycle looks ok. We even find short term capex tailwinds. •  We remain pessimistic on UK growth due to contracting real pay in the short term and weak fundamentals in the long term.

We read ECB board member Benoit Coeuré's interview on Thursday as an attempt to steer the market away from complacency on the ECB's next moves, in another (complex) exercise of communication fine-tuning as we approach the start of monetary policy normalization. We still think ECB exit will be gradual though. We reiterate in our weekly view that we see a change in language in June, including a shift to neutral balance of risk, removal of the notion that rates could fall further and that QE could be upgraded.

One of the main reasons we think the ECB exit will be gradual is the inflation outlook. We update our forecasts. Although core inflation should improve gradually, it will remain well below ECB target (Chart 1). And recent oil price developments have kept our 2017 headline forecast at 1.6%, but shaved 10bp off our 2018 forecast, now at 1.2%.

We remain cautious on the medium term growth outlook, but the short term looks ok. Capex growth north of 4% this year should help. In our main piece this week, we show that recent capital profitability has turned slightly positive, probably reflecting lagged monetary policy effects and national policy decisions. Structurally, capex prospects remain subdued and conditional on a profitability overshoot.

Politics remain a source for market jitters. In our weekly view, we discuss that the results of the PSOE primaries in Spain could potentially lead to early elections. This could increase concerns over market and economic consequences of a potential centre-left/far left alliance. For Greece, markets seem hopeful for a compromise at next week's Eurogroup meeting. We remain sceptical. Red lines on debt relief and IMF participation remain in place. The run-up to the summer redemptions could become complicated.

Our UK chartpack illustrates why we remain pessimistic on the UK growth outlook. Surveys suggest short term upside risks to our forecasts. But real pay is contracting and exports are unresponsive to sterling. Uncertainty, potentially worsening trade terms with the EU and weak fundamentals leave us pessimistic.

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