Euro area GDP growth set to weaken on back of the slowdown in China and other emerging markets

Euro area GDP growth is set to weaken on back of the slowdown in China and other emerging markets. We have already seen the euro area financial sentiment indicators drop significantly and especially German exports have suffered. Besides the slowdown in China, the recent appreciation of the effective euro will also be a headwind to exports. 

Despite the above negative effects, GDP growth of 1.4% expected in 2015, amongst others reasons, to a solid progress in private consumption. Looking into 2016, the recovery is expected to strengthen further and forecast growth of 1.7%. Last month inflation again turned negative, driven by lower gasoline prices. However the deflation is set to be temporary and a sharp rise in inflation is likely in Q4, as the drag from energy prices should start to fade. 

"We project core inflation to be modest as wage pressure is likely to remain subdued and as we forecast a stronger EUR", says Danske Bank.