Euro area economic growth likely to continue accelerating in 2017

Euro area survey indicators are quite elevated and imply that GDP growth should continue to accelerate through this year, noted Scotiabank in a research report. The relationship between output and survey indicators implies that the economic growth might reach 1 percent with the annual rate accelerating towards 3 percent year-on-year by the end of this year.

This, in turn, is likely to translate into an annual average growth rate of 2.25 percent to 2.5 percent. Yet the consensus and ECB anticipate the economy to expand 2 percent year-on-year or lower. This cautious outlook might reflect scepticism that the elevated surveys would filter through into the hard activity data, especially in the context of the stop-start nature of the euro area rebound thus far.

The euro area’s annual average growth rate is likely to be 2.2 percent year-on-year. Keeping surveys aside, the outlook for the expenditure components of GDP is positive, although not stellar. Sentiment amongst consumer is elevated and indicates to a bit more headroom. In the meantime, real disposable income growth is comparatively mediocre. The most positive parts of the growth outlook are investment and net trade.

The elevated PMI survey implies that investment growth might accelerate to a 2 percent rate or even higher. In the meantime, net trade is expected to aid from the combination of strong overseas demand growth and the relative weakness of the EUR exchange rate.

“More broadly, with the cloud of political risk lifting, there is one less headwind to growth. On a country by country basis, clearly Germany is leading the charge. However, growth is broad-based, with Spain on track for a third consecutive year of growth in excess of 3% y/y”, added Scotiabank.

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest