Stability returns and systemic risks fade
The Eurozone remains in a “sweet spot”, benefiting from lower energy prices, a more competitive exchange rate and solid demand in the UK and US.
After the turbulence of 2012-13, and the stabilization of 2014, the Eurozone has enjoyed a more encouraging pace of growth through 2015.
A stronger dollar and weaker oil prices have been aided by some good policy-making at the Eurozone and domestic levels, in particular the asset purchase program from the European Central Bank (ECB) and ongoing reform efforts in some economies, and in combination delivered four consecutive quarters of Eurozone GDP growth of 0.4%-0.5% to Q3 2015.
Consumer demand remains a key driver of Eurozone recovery in H2 2015. Renewed weakness in oil prices is providing a second (albeit less substantial) boost to household incomes, while household views of labor market prospects are tentatively improving.
Also, Eurozone exporters posted the strongest year-on-year rate of export growth for four years in Q2 2015.
As a result of firmer consumer and export demand, profitability is improving for Eurozone firms, with signs this is feeding through to capital spending. Looking ahead, as capacity utilization continues to rise, we expect business investment to accelerate from 2016 onwards.