Euro area growth to accelerate to 1.8 per cent

The EUROFRAME Group of 10 European research institutes expects real GDP in the euro area to rise by 1.8 per cent in both 2016 and 2017, up from 1.5 per cent last year. A number of factors support the expansion, including continued strong monetary stimulus, a competitive exchange rate, the absence of significant fiscal restraint and a persistently lower oil price. The pace of expansion will nevertheless accelerate only slightly due to lack of momentum in the global economy: EUROFRAME expects growth in the US to be only moderate, the gradual deceleration in China to continue and other emerging economies to experience substantial economic difficulties. Unemployment in the euro area should continue to gradually decline and fall to 9.5 per cent in 2017.

The drop in the oil price is expected to be largely persistent as it is reflecting a fundamental shift in OPEC policy towards targeting a lower level of prices in order to defend market shares against emerging competition from high cost producers, including US shale oil. According to model calculations, the beneficial effects on growth in growth in oil importing countries should exceed the dampening effect on oil exporters. Due to the magnitude of the terms of trade shift, risks for the stability of the world economy have also increased.

The large number of refugees currently entering into EU countries is expected to lead to substantial additional government expenditures and visibly raise growth in the short term in the most affected countries. The associated fiscal stimulus could be in the range of ½ of a percentage point of GDP in countries like Germany or Finland and the effect on growth only slightly lower. There is, however, the risk that the apparent inability of European countries to agree on a common approach to the problem, increasing signs of disintegration of the Schengen area and the perception of insufficient capacity of societies to acceptably deal with the number of refugees may finally reduce consumer sentiment and weigh on demand.

The EUROFRAME Group comprises ten of the most respected economic forecasting and research institutes in Europe: CASE (Poland), CPB (Netherlands), DIW Berlin (Germany), ESRI (Ireland), ETLA (Finland), The Kiel Institute for the World Economy (Germany), NIESR (United Kingdom), OFCE (France), PROMETEIA (Italy) and WIFO (Austria). The Group’s latest report, The Assessment of The Euro Area: Winter 2015/2016, giving GDP and inflation projections for the Euro Area to 2017, was published on January 29, 2016.

For further information please contact Paavo Suni, mob. +35850 524 5616,

Download the report Economic Assessment of the Euro Area: Winter 2015/2016.

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