Eurozone GDP growth likely to slow next year – BNPP

Research Team at BNP Paribas expects a slowdown in Eurozone GDP growth over the coming year, leaving 2017 growth at 1.2%, down from an estimated 1.6% in 2016, due to higher inflation, a slowdown in exports to the UK and reduced monetary and fiscal policy support.

Key Quotes

“The risks to our 2017 growth forecast are broadly balanced. The potential for higher oil prices, political event risk and adverse developments in the banking sector are some factors that pose downside risks to our forecast. A looser fiscal policy and better global economic backdrop than we currently assume – potentially stemming from the US, which could have positive spillover effects elsewhere and/or a less than feared spillover effect from Brexit – meanwhile, carry upside risks.”

“On inflation, we assume that higher oil prices and weaker EUR embedded in our forecasts will have a relatively limited pass-through to underlying inflation amidst still-sizable slack in the Eurozone economy. Both shocks could prove to be bigger than we expect, however, either because of the size of the movement or because of a stronger pass-through. Conversely, softer growth implies downward risks to inflation, through a wider output gap and its likely effect on inflation expectations.”