We expect euro-area GDP growth to be above consensus in 2015 despite our view of deflation in 2015.
The euro area will, in our view, experience deflation during most of 2015 but it will mainly be due to the low oil price, which boosts private consumption.
In addition to stronger growth in private consumption the recovery should also follow as a result of fading headwinds to economic activity.
First, exporters will benefit from the depreciation of the effective exchange rate, which should continue to weaken as a result of further easing by the ECB.
Secondly, the expansion of the ECB's balance sheet should improve credit to the private sector as banks' supply conditions have improved. Related to that, lower costs of borrowing also support business investments and private consumption.
Finally, the headwind from fiscal tightening continues to fade, while European politicians are likely to support the recovery through an investment project.
The market factors in low future growth and inflation and forward rates are consistent with the ECB not lifting its key rates the next five years.
In other words, the market is pricing in a Japanese scenario, as the EUR swap curve is now lower across all tenors compared with Japan in the 1990s.
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