Economic Perspectives May 2018


  • The global economy retains positive momentum, but sentiment - although still at healthy levels - has continued to soften in some economies while only showing a partial recovery in others. Some mean reversion after reaching multi-year highs at the beginning of 2018 is partially responsible for the drop. However, the persistent uncertainty around future developments on the trade front has also weighed on business optimism, particularly for firms in the tradeable goods or manufacturing sector. Overall, the economic environment remains healthy, albeit less excellent than seen at the start of 2018.
  • Economic data for the euro area economy disappointed in recent weeks with a continued decline in corporate sentiment measured by PMIs and slower real GDP growth figures for Q1 than in previous quarters for most countries. A weaker growth contribution of net exports, largely driven by a stronger EUR in Q1, was the main cause behind the latter. Nevertheless, high consumer confidence and positive labour market developments will continue to underpin private consumption and remain supportive. All in all, in our view, the euro area economy remains in an expansionary phase with above-potential growth envisaged for the next two years. However, given recent developments, we have lowered our EMU growth forecasts slightly for this and next year.
  • New developments in Italian politics are clearly a test for the sustainability of current low intra-EMU spreads and may trigger a renewed debate on the euro area's future.
  • While US inflation has picked up somewhat in recent months, euro area headline and core inflation disappointed significantly in April. Seasonal effects regarding Easter holidays played an important role and indicate that this inflation dip will likely be only temporary. Nevertheless, recent softer economic data for the euro area economy prompted a somewhat more cautious message from ECB president Mario Draghi after the policy meeting in April. Hence, the first move towards tighter ECB policy still seems some distance away. We keep our base scenario unchanged and expect the ECB to continue its Asset Purchase Programme (APP) at least until September 2018 with a period of tapering thereafter.
  • Focus article - The euro zone economic business cycle : quo vadis?

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This publication was produced by the economists of the KBC group. All opinions expressed in this publication represent the personal opinions of the author(s) at the date stated therein and are subject to change without notice. KBC Groep NV makes no warranties as to the extent to which the scenarios, risks and forecasts proposed reflect market expectations, nor as to the extent to which they will actually materialise. All forecasts are indicative. The data in this publication are general and purely informative. The information cannot be considered as an offer to sell or buy financial instruments. Nor can it be considered as investment advice, investment recommendation or "investment research" within the meaning of the law and regulations on the markets in financial instruments. Save the express prior and written consent of KBC Groep NV, any transfer, sale, distribution or reproduction of the information, publication and data is prohibited, regardless of form or means. KBC Groep NV cannot be held liable for the accuracy or completeness of the information or for the direct or indirect damage that would result from the use of this document.

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