Bank of America (BofA) has raised its euro area growth and inflation forecasts, though it still expects only modest expansion in the near term and a persistent undershoot of the European Central Bank’s target further out.
The bank now projects GDP growth of 1.0% in 2025, up from 0.9% previously, while inflation is expected at 2.0% next year, revised from 1.8%. Growth is seen slowing to 0.9% in 2026 before recovering to 1.4% in 2027, with inflation averaging 1.5% and 1.8% in 2026 and 2027, respectively.
BofA economists noted the adjustments are largely the result of technical factors, including slower-than-expected unwinding of earlier stockpiling in Ireland, which lifts the 2025 average. Trade developments will weigh on growth in the near term, while the German fiscal push will take time to fully show through.
The team led by Ruben Segura-Cayuela said it still expects “an economy that barely grows for now but hopefully accelerates next year thanks to improving external demand and the German fiscal impulse”.
Yet internal demand, particularly in Germany, France and Italy, remains weak, leaving Spain as the outlier with some strength.
On prices, headline HICP inflation is forecast to average 2% in 2025, 1.5% in 2026 and 1.8% in 2027.
Core inflation is seen at 2.2% in 2025, easing to 1.8% in 2026 and 2027, while services inflation is likely to normalize gradually, while rerouting effects should keep core goods prices subdued, helping disinflation momentum.
“We still see headline moving well below 2% in the later part of this year and core slightly below 2%,” BofA wrote.
The ECB, meanwhile, is expected to hold rates steady in September, with the bank pushing back its anticipated 50 basis points of cuts to December and March. That would bring the deposit rate to 1.5% by the first quarter of 2026.
BofA also delayed its call for hikes from early 2027 to the second half of that year, warning that “procrastination has a cost”.
Despite the slight upgrades, BofA stressed that uncertainty remains high, citing fragile consumer spending, weak investment, and risks around the German and European fiscal push.
Trade tensions and tariffs are also seen as drags on near-term growth. Overall, the bank expects the euro area’s recovery to materialize only slowly, with inflation persistently undershooting the ECB’s target.
Source :
https://www.investing.com/news/economy-news/euro-area-growth-inflation-forecasts-nudged-higher-at-bofa-4226142
