Last week brought more evidence that the euro-zone economy has continued to perform very well and we have decided to upgrade our forecasts for the region significantly. Indeed, inflation has been more subdued than we had assumed. In turn, this should mean that the slowdown in household spending growth is not too sharp. What’s more, there has been no discernible economic impact from political uncertainty, and financial markets have remained buoyant.
Accordingly, we now expect euro-zone GDP to rise by around 2% this year and 1.7% in 2018. This rests on three key assumptions: that inflation will not rise much further; that forthcoming elections will have benign outcomes; and that the ECB will maintain its dovish stance. Nevertheless, we are still concerned about the euro-zone’s longer-term prospects. Indeed, there seems to be an ever-decreasing chance of the fiscal union that we think is needed to ensure growth in the long term.
Energy effects have been less pronounced than we had expected. This chart shows that energy inflation has not risen by as much as trends in oil prices would have implied in recent months.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services