ECB likely to lower 2016 growth forecast on slow economic recovery

The economic rebound of the euro area is very slow. The bloc's GDP grew just 0.3% q/q in Q4 2015. This limited growth rate will continue in the following quarters. Euro area's businesses, given the uncertainty in earnings and sales outlook, will continue to restrict investment. Without investment, a sustained growth is unlikely. The ECB and several economists are expected to soon revise down their 2016 growth forecast.

Construction, state and private households are expected to have positively contributed to the euro area economic growth, while foreign trade is likely to have negatively contributed to the growth. This is expected to remain the same in coming quarters. State expenditure is expected to increase more, while private consumption will continue to be strong on increasing employment and higher real wages.

However, this is unlikely to urge businesses to keep aside their investment restraint as sales outlook continues to be moderate. Moreover, the financial market volatility will disturb companies and high corporate debt is increasingly restricting their investment. Businesses will possibly only make investments that are totally important.

The majority of economists' and the ECB's higher growth expectation for 2016 are becoming very much unlikely after the weakness reported during the end of 2015. In January, the consensus projection declined slightly to 1.6%.

"This tendency should continue in the coming months and the ECB is likely to correct its growth forecast of 1.7% downwards slightly in March. We still envisage only a plus of 1.3%", says Commerzbank.