A broadening recovery points to a brighter future

EY Eurozone Forecast
December 2015 – Final edition

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In this final edition of the Eurozone forecast we can read that the Eurozone has endured a turbulent few years, but moving into 2016 the conditions seem right for a more stable period of economic recovery. The pace of growth into the medium term will be a little slower than Eurozone residents are used to, but more sustainable and less reliant on debt accumulation.

After an initial rebound led by consumer spending in 2014–15, we expect investment spending to increasingly take up the baton of growth from 2016 onwards. By 2017, investment and household consumption should be contributing broadly similar amounts to overall Eurozone GDP growth. Alongside this, we expect a growing contribution from government spending, which will be increasingly free from the constraints of austerity, albeit still constrained by high debt burdens.

Consumer spending has been the principle driver of growth in the Eurozone recovery thus far. Looking ahead, although we expect a more balanced recovery with investment spending and consumption making broadly similar contributions to growth, household spending will nevertheless remain crucial.

One of the key achievements in recent years has been the extent to which Eurozone countries have expanded their trade into emerging markets, to achieve growth while traditional markets have been contracting. However, with the slowdown in China and attendant falls in commodity prices, imports by some major emergers have slumped – down in both Russia and Brazil.

In advanced economies, imports have been rather more robust through 2015, particularly in the US. But this will ease though our forecast horizon and, even with faster import growth in the UK and Japan, the overall outlook is for slower growth in Eurozone exports.