EMU GDP growth fell below trend in Q4 2007. At +0.4% q-o-q, the pace of expansion halved when compared to Q3. And there are no signs of a re-acceleration any time soon. The big three EMU countries were hit the hardest, while the smaller ones showed more resilience. The ECB cannot ignore the macroeconomic warning signals. Despite persisting inflationary pressures, growth risks will – as in 2001 – ultimately gain the upper hand soon. We expect the ECB to switch to an easing bias followed by a first rate cut at the end of Q2.

Further topics:

• Weekly Comment: The challenge for the ECB.
• German Construction: No renewed bout of weakness.
• US Recession – Waiting for Godot?