Nasty mix of slowing growth and rising inflation

The latest data have provided further evidence of a marked slowdown in euro-zone economic activity. The key business surveys turned down in June, suggesting that growth in Q2 will nowhere near match Q1’s 0.8% gain. But despite the weaker outlook for activity, survey indicators of selling prices have risen further. With inflation itself already at 4%, the highest level in the history of the euro-zone, it is not surprising that the ECB plans to hike interest rates this month. But firmer evidence of slowing growth supports our view that this move will prove to be a one-off.