- Over the next 12 months, the eurozone will likely see real growth of around 1.5% and inflation around 1.0% as improving growth and a weakness in the euro should be sufficient to halt the decline in core inflation.
- Looking at the UK, we see growth to be in a range of 2.5% to 3% and inflation near the official target of 2% in a range of 1% to 2% over the cyclical horizon.
- Give the size of European Central Bank's (ECB) quantitative easing (QE) programme, technical flows will likely dominate investment strategies over the next few months. We expect to favour positions on the curve that benefit from duration extensions, an overweight to peripheral spreads and select corporate issuers, as well as an underweight to the euro versus the U.S. dollar.
- The excess reserves generated by the ECB's (QE) programme are remunerated at the ECB's -0.20% deposit rate, which may raise the velocity of money as investors seek to reallocate their investments away from negative yields. This could have important implications for global capital markets.