The Eurozone is still in a “sweet spot” as it benefits from lower energy prices, a more competitive exchange rate and solid demand in the UK and US, according to forecasts from EY.
In its EY Eurozone Forecast (EEF) for October, the financial services firm predicts that investment spending will pick up in 2016, which will in turn boost GDP from 1.6 per cent to 1.8 per cent in 2016.
Internal and external factors have aligned for a stronger Eurozone recovery in 2015-16, according to Tom Rogers, senior economic adviser to the EEF. Weak oil prices are helpful to household incomes, and the EEF expects consumer spending growth of 1.7 per cent in 2015, the strongest since 2007 – although as energy prices recover this will likely drop to 1.4 per cent in 2016 and 1.3 per cent on average in 2017-19.
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Eurozone exports posted the strongest year-on-year growth rate for four years in the second quarter of 2015, benefitting from both the weaker euro and faster growth in the US and UK. The EEF expects that exports will grow by 4.8 per cent this year, before easing to four per cent in 2016 and 3.6 per cent in 2017 as growth in the advanced economies slows.
Forecasts for export growth are subject to greater risk than they have been for some time in the light of mounting uncertainty about the slowdown in China and associated recent financial market turbulence, EY warned.
“The slowdown in emerging markets is a worry, but is countered by strengthening export markets in the US and UK,” said Rogers. “Meanwhile consumers are increasingly hopeful about their labour market prospects and, with the worst of austerity over, fiscal policy will drag less on growth.”