Euro area inflation, wage growth likely to pick up in 2018 – DNB Bank

The upturn in euro area economy gathered momentum in 2017, and is set to remain solid in 2018, noted DNB Bank in a research report. By the end of 2018, the euro area economy might be back in a situation with normal capacity utilization. Easing of Chinese economy would hamper export growth later this year, and unwinding of pent-up domestic demand and higher interest rates might curtail growth further in the next two years.

Growth rates are expected to remain above the potential, indicating to an additional decline in unemployment. According to DBS Bank, expect core inflation and wage growth are likely to pick up, but gradually and modestly as global competition would continue to play a vital role in wage settlements.

Given an unexpectedly solid upturn, the ECB would be confidence enough in the outlook for core inflation to end the Asset Purchasing Program in September, laying the ground for a first rate hike in March 2019. At that point, the deposit rate is expected to be hiked by 15 basis points to -0.25 percent, stated DNB Bank.

“In September, we expect both the deposit and the repo rate to be hiked to 0 and 0.25 percent, respectively. We expect another three hikes in 2020, with the refi rate peaking at 1.0 percent before the negative repercussions of the US recession triggers cuts down to 0.5 percent in the course of 2021”, added DNB Bank.

At 16:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral -46.9488, while the FxWirePro's Hourly Strength Index of US Dollar was bearish at -78.7066. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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