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Growth in an inconsistent and incoherent monetary union

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  • Growth in the Euro area is expected to come in below 1% yoy. The divergence with the US is not the direction of growth (both having rising growth this year) but the fact that the Euro area is still below trend, while US growth is strong enough to reduce unemployment meaningfully.
  • The Euro area also has divergence amongst its various components. The contrast between Greek and German growth only serves to highlight the inconsistent and incomplete nature of the Euro as a monetary union.
  • US retail sales softened as the effects of lower oil prices came through. As the first enthusiasm of lower oil prices fades, so consumer confidence is likely to moderate (per today's data), though we still see a very strong level of confidence over all.
  • US import prices should show the effect of lower oil prices, although export prices from other countries of non-oil products do not suggest much price competition in the wake of the stronger dollar. Lower oil does have a bearing on transport costs, of course (a difference between exports prices and US import prices).