Eurozone economic growth momentum is likely to be sustained in the first half of this year, driven by steady growth in private consumption and public spending, the group of three leading European economic institutes said Wednesday.
Gross domestic product appear to have increased by 0.4% in the fourth quarter of 2016 and is expected to keep growing at the same pace over the first half of this year, the group consisting of the Germany’s Ifo, France’s INSEE and Italy’s ISTAT said in a statement.
Inflation was forecast to increase to 1.5 percent in the first and second quarters of this year from 0.7 percent in the final three months of 2016. Energy prices are expected to drive overall price growth. Core inflation was expected to keep growing at a similar pace over the forecast horizon at about 0.9 percent year-on-year.
“Political uncertainty remains high due to the unclear future actions of the next US government, the questions about the realization of ‘Brexit’ and the consequences of the referendum in Italy,” the institutes said.
“With elections being held in France, Germany, and the Netherlands, political
uncertainty is not expected to decrease. All of the above events may have an adverse effect on firms’ investment decisions.”
Industrial production is expected to pick up slightly in the first and second quarters after slowing in the final three months of 2016. Private consumption is set to maintain growth momentum throughout the year, amid rising consumer confidence and employment. Wage growth is expected to by dynamic.
Favorable labor market conditions as well as increasing nominal wages are expected to buoy up disposable income, despite an upturn in inflation which slowly erodes purchasing power, the institutes said in the report. They expect investment to become slightly more dynamic, based on the continuously good financing conditions.
External demand is likely to be underpinned by the global recovery, they added.
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