Euro area growth challenges galore - Nomura

Research Team at Nomura, suggests that the weak potential growth, high non-performing loans and debt trajectories remain key euro area challenges.

Key Quotes

“The ECB left interest rates unchanged on 2 June, with little change to projections signalling a clear easing bias. The APP (now €80bn pm and including IG corporate bonds) is calibrated at €1.74trn (c. 16% of GDP). TLTROIIs (0% possibly down to the deposit rate) provide a rate signal, lower bank funding costs and incentives for bank lending.

The ECB has focused on boosting credit and domestic demand and avoided opening up a new front on currency wars via tiering. We do not expect the Governing Council to rush to additional easing as implementation will take some months to unfold. Our bias remains that the ECB will have to do more in H2 2016 with the focus most likely on APP and a small depo rate cut.

Disinflationary shocks damp the rise in UK inflation. We expect this to keep the BoE on hold until at least February 2017. Our bullish baseline is conditional on EU membership. A "leave" vote could cause a recession as imbalances correct.”