Europe Economic Weekly, A not so easy recovery

BofA Merrill Lynch Global Research - Viernes, 27 de Septiembre

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The weekly view: Feeling uncomfortable
This week was dominated by the reactions to the German election and the discussion of another LTRO, ahead of the ECB meeting next week.
Euro area: ECB: finally ready to act? 

The ECB has stirred market expectations with talks of an LTRO. In our view, a new LTRO would be aimed at addressing liquidity issues, so would only take place on evidence of tightening liquidity conditions, possibly with a capped rate. 

UK: Domestically-orientated inflation rising? 

Import price effects on CPI inflation may be fading materially at present. But the modest declines in core inflation may suggest that domestic inflationary pressures have risen instead.  

France: Budget 2014 not so good
The French 2014 draft Budget Law looks reasonable, but has lots of room for slippage. It is vulnerable to over-estimated tax receipts. It relies on spending saving more than reforms, thus calling for more adjustment later on. As a result, the deficit to GDP ratio declines only slowly, pushing debt above 95% of GDP.  

Austria: Elections to yield a loyal partner for Germany? 

Austria's elections this Sunday may see the euro-skeptical voices in Europe grow louder. A continuation of the current grand coalition would therefore likely be welcomed in Berlin, Frankfurt and Paris. 

Spain: On the mend, but testing times ahead? 

Our outlook for Spain remains for small positive growth in the next 12 months, consistent with a slow and fragile recovery, sensitive to adverse shocks and uncertainties, mainly on the fiscal side and the evolution of lending. 

Peripheral Watch: More politics 

Local elections in Portugal will provide guidance on the support the current government has, relevant if it has to negotiate a new programme.

 

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