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Will the Improving Economic Sentiment Force the ECB to Act Faster?


Inflation has been running rampant everywhere, especially in the US, but the rest of the world has been trying to catch up. The tensions between the US and Russia are helping increase energy prices, which is not helping the inflation case at this moment. The US CPI (consumer price index) has increased above 7%, while in Europe the CPI has soared to 5.1%, which is still behind the US, but this is forcing the European Central Bank to turn hawkish.

The ECB is going to end the PEPP stimulus program by March, but they’re still not planning to start hiking interest rates anytime soon. The ECB thinks starting to hike rates in June is too early, while the FED is deciding whether to increase interest rates by 0.25% or 0.50% in March.

But, with energy prices increasing and OPEC+ not planning on increasing production, inflation could follow this direction higher, which could force the ECB to act faster on inflation, despite ECB president Lagarde rejecting such calls last month.

The economy is picking up pace again, and the sentiment is improving. Coronavirus restrictions will be removed soon, which will improve the sentiment further. Let’s have a look at the Eurozone and German ZEW economic sentiment.

Eurozone Q4 GDP by Eurostat – February 15, 2022

  • Q4 GDP QoQ second estimate +0.3% vs +0.3% prelim
  • GDP YoY +4.6% vs +4.6% prelim

No change to the initial estimates, so this just reaffirms a slight growth in the euro area economy in Q4, which is arguably a better-than-anticipated performance, amid the hit taken due to the spread of the omicron variant.

Germany February ZEW by ZEW – 15 February 2022

ZEW 02-2022

  • February ZEW survey current condition -8.1 points vs -7.0 expected
  • January current conditions were -10.2 points
  • Expectations 54.3 points
  • Prior expectations 51.7 points

There has been a mild improvement in current conditions, with the ZEW noting that the economic outlook for Germany continues to improve. They cite expectations of easing of pandemic-related restrictions and a stronger economic recovery in H1, 2022. It is worth noting that the ZEW says that inflation is expected to decline, but at a slower pace and from a higher level than previously thought.


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