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BofA look for "More Europe" fiscal response with 125bp ECB hikes by end-23

ECB
  • As well as updating its BOE forecasts this morning, BofA has updated its Eurozone forecasts.
  • "We cut our GDP forecasts to 2.8% (-70bp) and 1.7% (-50bp) for 2022/23. Inflation moves much higher, to 6.0% (+160bp) and 2.4% (+90bp), respectively."
  • "Europe's strong response in spite of large costs to its own economy makes us optimistic that joint fiscal support will follow. This week's 10/11 EU summit is unlikely to deliver an actionable outcome, but signal a debate is ongoing. We assume half of the economic shock is buffered by fiscal policy."
  • In terms of the ECB, BofA now "expect QE to end in 3Q22, and a first hike (of five in total by end-23) to follow in Dec-22. Compared to our previous expectations, that means a one-quarter delay, but a hiking cycle back to neutral policy rates (1.0% refi in 4Q23)."
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