## Some are disinflating more than others
## Forceful monetary policy action is warranted
At first sight it may seem strange that the ECB eases policy further at a time when the economy is clearly on a recovering trend. Yet, one must bear in mind that the recovery is mostly driven by the fact that the two big drags on growth in 2011 and 2012 are now waning in strength: The pace of fiscal tightening is coming down rapidly and the monetary firebreaks have supported peripheral financial conditions and credit supply as well as general confidence throughout the region.
All this has pushed growth up from an around -1% year-on-year pace to a pace that will probably settle around/slightly above the potential growth rate (which we estimate at 1.3%).
However, it is very unlikely that the private sector will sustainably push growth above this rate of its own accord because the region is still saddled with substantial imbalances in the form of private sector balance sheet problems and a lack of (French and Italian) competitiveness. This implies that the very substantial degree of slack will only be eroded at a very small pace because of which domestic inflationary pressures will remain largely dormant.