A modest pick-up in euro area Q4 GDP will be food for ECB doves

Eurostat is set to release preliminary estimate of euro area Q4 GDP on Friday and expectations are for a modest 0.3% q/q increase which could likely be fodder for the doves in the ECB. Declines in energy prices are likely to have supported, also factors that held back growth in France should abate.

However a weak winter half-year could put ECB's growth projection for the full year 2016 at 1.7% growth in doubt. Going forward, a number of factors could weigh on growth, ranging from weak demand out of Emerging Markets and unfavourable financial market conditions over EU-internal frictions to country-specific developments.

Sentiment indicators like the PMIs, the German Ifo and Economic Sentiment have shown declines. Further dips in February/March would raise serious doubts about the recovery and could even trigger a recession debate also for the Euro area.

We definitely have to wait for some hard data for Q1. An ongoing recovery and a shrinking output gap are preconditions for inflation to rise. If the recovery peters out, it could add to pressure on the ECB to ease monetary policy further.