Eurozone: self-sustaining economic expansion to remain intact - Wells Fargo

Analysts from Wells Fargo, expected the increasingly self-sustaining economic expansion in the eurozone to remain intact and they consider that a tighter ECB policy should lead to a higher euro against the US dollar. 

Key Quotes: 

“Real GDP has accelerated in the Eurozone, as the year-ago pace of growth recently crossed the 2 percent threshold for the first time since Q1-2011. Economic growth has become increasingly broad based amid steady employment gains and improving business sentiment. Strengthening economic growth in the rest of the world has also helped bolster export growth in the euro area.”

“Looking forward, we expect the increasingly self-sustaining economic expansion to remain intact. Our current projection looks for real GDP in the Eurozone to grow 2.1 percent in 2017, which, if realized, would be the strongest annual average growth rate since 2007.”

“Like several other advanced nations, Eurozone monetary policymakers face a challenging conundrum; the unemployment rate has reached an eight-year low, but core inflation remains listless around 1 percent. As such, policymakers at the European Central Bank (ECB) will likely proceed with caution in the months ahead as it begins to tamp down the policy stimulus.”

“The ECB has maintained its main refinancing rate at 0.00 percent since March 2016. The ECB dialed back its monthly rate of bond purchases earlier this year, and we look for it to cease buying bonds altogether by the middle part of next year and for it to hike rates by the end of  2018. Expectations of tighter ECB policy should cause the euro to trend higher vis-à-vis the dollar in coming months”.