CESifo GmbH Münchener Gesellschaft zur F&ou : Eurozone Economy Stages Gradual Recovery

Jan 11, 2017

The Eurozone economy is recovering gradually. Growth of 0.4 percent can be expected in both of the first quarters of 2017 respectively, after 0.4 percent growth in the fourth quarter of 2016, according to forecasts by the Ifo Institute (Munich), INSEE (Paris) and ISTAT (Rome). This development will be driven by private and public consumption. Despite an increase in inflation, the disposable income of private households stands to benefit from rising wages and improving labour market conditions. Investments will also recover slightly in the first half of 2017.

Assuming that the price of Brent oil remains at 56 US dollars per barrel and the exchange rate stays at 1.05 US dollars per euro, inflation can be expected to increase considerably from 0.7 percent in the fourth quarter of 2016 to 1.5 percent in the first and second quarter of 2017 respectively. Political uncertainties include the new US President, Brexit negotiations, the aftermath of the referendum in Italy, as well as forthcoming elections in the Netherlands, France and Germany. The precarious situation of several Italian banks also represents a risk factor in this forecast.