European Economic Growth Forecasted to Accelerate in 2017

Economic data from the Eurozone were weak on Tuesday February 14 with Eurozone GDP grew in Q4 by 0.4% instead of 0.5% estimated by economists.

The disappointment comes as German GDP missed the mark having risen 0.4% instead of 0.5% expected by analysts.

Industrial production fell 1.6% in December versus a fall of 1.4% expected.

The impact on the Euro was however limited as the latest growth data pertained to the last quarter of 2016 while more recent survey data for 2017 have been reassuring.

“Uncertainty has not affected euro area growth so far and business surveys point to an acceleration in activity, especially in industrial sectors,” says a note from Barclays.

The European Commission on February 13 released their latest growth forecasts that show Eurozone GDP growth is forecast at 1.6% in 2017 and 1.8% in 2018.

“This is slightly revised up from the Autumn Forecast (2017: 1.5%, 2018: 1.7%) on the back of better-than-expected performance in the second half of 2016 and a rather robust start into 2017,” says a statement from the body.

And this should prove positive for the Euro going forward as it could prompt expectations for the Eurozone to withdraw its Euro-negative stimulus programmes, most notably its quantitative easing efforts that see it purchase vast amounts of corporate and government debt every month.

“The ECB has resisted calls to tighten its policy. But if incoming data continues to improve as we expect then tapering talks should come back to the forefront, potentially causing the Euro to surge higher,” says Fawad Razaqzada at Forex.com.

The Euro continues to struggle amidst concerns of an electoral upset in the Eurozone in 2017 with the major economies heading for the polls.

But, event this may not be enough to dent the Euro argues Razaqzada:

“We are heading into a period of uncertainty in the Eurozone due to the upcoming elections in Germany, France and the Netherlands. But if the US election is anything to go by, the rise of right-wing politics in the Eurozone may not necessary mean that the Euro would weaken.”

Barclays Upgrade Growth Forecasts for Eurozone

Analysts at Barclays have meanwhile upgraded their growth forecasts for the Eurozone in 2017.

Researchers at the Barclays have again revised their GDP growth forecast to 1.6% in 2017 while consensus estimates in the research community have growth pencilled in at 1.5%.

“Household consumption has remained the main growth driver in 2016, owing to strong job creation and low inflation, which more than offset the effect of still subdued wage growth, while fiscal policy was moderately supportive in some member states,” say Barclays.

Risks for GDP growth remain dominated by politics and policies, both global and
domestic.

Upcoming policy decisions by the new administration in the US are still uncertain and may impact global growth. Moreover, several political events in 2017 could cause uncertainty to increase, potentially influencing consumers, as well as corporate and market sentiment.

Europe will also have to continue to deal with structural shortcomings that could also depress the growth outlook.