The expansion of Eurozone gross domestic product lost some momentum in Q2 2016 (+0.3%), as investment and private consumption slowed down, partly due to weather related factors.
Economic activity is expected to accelerate slightly over the forecast horizon (+0.3% in Q3 2016 then +0.4% in Q4 2016 and Q1 2017) on the back of a strengthening of external demand and a stabilization of private-consumption growth. The latter should be mainly driven by the gradual improvement of labour market situation and buoyant growth in real disposable income due to low inflation. Investment is forecast to rebound in H2 2016 albeit at a slow pace.
Under the assumptions that the oil price stabilises at $47 per barrel and that the Euro/Dollar exchange rate fluctuates around 1.12, headline inflation is expected to remain well below 2% (+0.7% in Q4 2016 and +1.3% in Q1 2017). The Brexit referendum in the UK is unlikely to have any significant short-term impact on trade flows with the Eurozone but would put some limited downward pressure on investors’ confidence if political prospects in the European Union became cloudier.