HSBC Global Viewpoint The Macro Brief – Europe on a mission
Oct 3, 2025
Simon Wells, Chief European Economist at HSBC Global Research, delves into the Eurozone's growth prospects and inflation challenges. He highlights how the ECB's strategies have led to a swift inflation reduction and discusses the persistent inflation issues in the UK. Wells also explores the impact of national fiscal policies on Eurozone growth, particularly Germany and France's contrasting approaches. He forecasts potential inflation spikes by 2027 and evaluates the risks to Europe from external factors like the US government shutdown.
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Rapid Disinflation Driven By Reversed Energy Shock
- Eurozone inflation fell quickly because the energy shock reversed and central bank credibility remained intact.
- Independent central banks anchored expectations, enabling disinflation with limited economic cost.
Trade Shifts Could Reduce Eurozone Prices
- Trade diversion may lower European inflation if goods redirected from the US arrive at discount prices.
- Currency appreciation and tariff dynamics could produce a near-term disinflationary impulse.
ECB Easing Now, Tightening Possible By 2027
- HSBC expects eurozone inflation to undershoot in 2026 then pick up by 2027 due to margin rebuilds and unit labour cost growth.
- They pencil in ECB rate rises in September and December 2027 if inflation trends higher to about 2.3%.