8 March, 2016 – The euro area economy will remain on a path of recovery this year. Given the bumpy start to 2016 on the financial markets and the current economic downturn in some emerging economies, however, KfW Research has revised its previous forecast for price-adjusted gross domestic product growth slightly downward to 1.6% (previous forecast: 1.8%). For 2017 KfW Research expects a growth rate of 1.8%.
As in the previous year, private consumption continues to be the main driver of economic growth. After years of recession, consumers in some euro area countries have a pent-up demand. It is boosted by increasing real incomes which, in turn, are benefiting from lower energy prices and an unemployment rate that is falling – if slowly.
Dr Jörg Zeuner, Chief Economist of KfW Group, described fourth-quarter 2015 GDP growth in the euro area as encouragingly stable. ‘What we are seeing on the European labour markets, however, continues to resemble a snail’s race. Unemployment is falling, but too slowly. Almost 17 million people in the euro area are still without work, and many of them are young’, commented Zeuner.
Investment activity continues to be slowed down by major uncertainties. In addition to concern over the development of the global economy and unresolved political issues in Europe, financial market turmoil plays a particularly important role. The ECB’s expansive monetary policy is the main strategy aimed at calming it down, said Zeuner. ‘Monetary policy can achieve a lot, but not everything. Enterprises are refusing to follow the ECB and remain reluctant to invest. That will not change until Europe has returned to more stability. All European partners should work to achieve this goal’, said Zeuner. ‘Otherwise, the only remaining tool is fiscal policy, even if that carries risks given the debt levels in some countries.’