Key insights
- Bank of America lowered its Eurozone inflation forecasts due to softer gas prices, projecting headline inflation to peak lower and later. They raised Eurozone growth forecasts slightly. The ECB is still expected to hike rates twice in 2026, followed by cuts in 2027. The impact on US equities is slightly negative, as weaker European inflation could lead to a stronger dollar, potentially weighing on US exports and earnings.
Investing.com - Bank of America cuts its eurozone inflation forecasts following a milder natural gas price outlook, with headline inflation now expected to peak at around 3.3% in late third quarter 2026 rather than 4% in fourth quarter 2026.
The bank now projects eurozone HICP inflation at 2.9% in 2026, down 40 basis points from its previous estimate, and 1.9% in 2027, down 20 basis points. Core inflation forecasts move to 2.2% in 2026 and 2.1% in 2027, each down 10 basis points. Inflation falls below 2% again in second quarter 2027, with core inflation reaching 2% at the end of that year.
Bank of America raises its eurozone growth forecasts to 0.7% in 2026, up 10 basis points, and 1.2% in 2027, up 20 basis points. The lower gas profile reduces the real economic shock of the ongoing crisis by around a third, though the impact of higher oil prices and uncertainty remains. Peak growth is expected in first half 2027 before moderating closer to 0.3% quarter-over-quarter by end of 2027.
The bank maintains its European Central Bank call for two rate hikes of 25 basis points each in June and July 2026, bringing the deposit rate to 2.5%. Risks of delaying the second hike to September 2026 are rising, though Bank of America views risks of no hikes at all as larger than risks of more than 50 basis points of total increases.
Bank of America expects quarterly rate cuts starting June 2027, bringing the deposit rate to 1.75% by the end of that year. The central bank could pause at a 2% deposit rate until a persistent undershoot pushes cuts below 2% in 2028.
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