Eurozone to grow by 3% next year?

Analysts at ING suggest that the recent upbeat economic indicators only paint part of the picture for the Eurozone and while there are indeed upsides to the outlook, some reasons for more modest expectations are compelling.

Key Quotes

“Even though the labour market has been steadily improving, meaningful wage growth is still not expected for 2018. This has a dampening effect on consumption as it limits household income growth. Risks to export growth include our expectation of a somewhat stronger euro and possible increased trade barriers. And what about the diminishing support of the European Central Bank?”

“While the political climate in the Eurozone has remained stable since the 2017 elections, the aftermath might still have a sting to it. Uncertainty around a new German government will make ambitious Eurozone reform plans in the coming months even less likely. Moreover, significant German fiscal stimulus for 2018 seems to be too ambitious with a caretaker government in place. This will curb German growth potential for next year. Worried eyes will also land on Italy in 2018 with elections happening before the end of May. With the ECB reducing its asset purchases by 30 billion per month, the question is whether this will not cause delayed investments in the Eurozone’s third-largest economy.”

“All in all, there remain enough side notes for us not to have 2018 as the best year since the inception of the Eurozone as our base case. Still, there are a lot of signs pointing towards a stellar start to the year. And with the Eurozone being the surprise of 2017, it is not unthinkable that another year of amazement at European data points is in the making.”

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