29/9/17: Eurocoin: Eurozone growth is still on the upside trend

The latest data from Eurocoin - an early growth indicator published by Banca d’Italia and CEPR - shows robust continued growth dynamics for the common currency GDP through August-September 2017. Rising from 0.67 in August to 0.71 in September, Eurocoin posted the highest reading since March 2017 and matched the 3Q 2017 GDP growth projection of 0,67.

The charts below show both the trends in Eurocoin and underlying GDP growth, as well as key policy constraints for the monetary policy forward.

The last chart above shows significant gains in both growth and inflation over the last 12 months, with the euro area economy moving closer to the ECB target zone for higher rates. In fact, current state of unemployment and growth suggests policy rates at around 2.4-3 percent, while inflation is implying ECB rate in the regions of 1.25-1.5 percent.

In summary, euro area recovery continues at relative strength, with growth trending above the post-crisis period average since January 2017, and rising. Inflationary expectations are starting to edge toward the ECB target / tolerance zone, so October ECB meeting should be critical. Signals so far suggests that the ECB will outline core modalities of monetary policy normalisation, which will be further expanded upon before the end of 2017, setting the stage for QE unwinding and some cautious policy rates uplift from the start of 2018.