Energy Shock Isn't Only Factor in Evolving Eurozone Outlook

Dow Jones
Sep 21

1400 GMT - The recent renewed rise in natural gas and energy prices leads Morgan Stanley to revise its inflation outlook materially higher, its economists say in a note. The bank adds another European Central Bank rate hike in December to its forecasts, followed by a much shallower easing cycle in 2027. But energy prices don't alone explain the change in outlook. "Euro area activity has proven more resilient than anticipated, reducing concerns that modest additional tightening would derail growth," they say. As a result, the ECB is increasingly focused on preventing higher energy costs from bleeding into other parts of the economy, even as interest rates move further into restrictive territory. The energy shock has changed the inflation conversation, but resilience in growth has changed the policy conversation, the economists add.

 

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