European Growth Outlook – November 2016

European economy holds up – Growth stimuli needed

The economy of the European Union is set to grow by 1.7 percent in 2016; the economy of the Euro area by 1.6 percent. The recovery in the labour market is boosting private consumption, which is still the biggest driver of growth. Investments are treading water at below the pre-crisis average. With global trade stagnating, net exports are actually tugging GDP down a peg.

Brexit initially threw the markets off course, setting off a wave of volatility. The ensuing slumps on the financial markets have now balanced out, and there should be no noticeable impact on the economy in 2016. The British pound has lost around 20 percent of its value since the result of the Brexit vote was announced. This is likely to put a slight damper on exports from the EU member states to the United Kingdom. The long-term impact of Brexit will depend on the terms of future EU-UK trade relations.

The ECB’s monetary policy is increasingly reaching its limits. The impact of the unconventional measures is waning. The stimulus created by the monetary policy will trickle away if it is not supported by structural and fiscal policy. The low interest rates are helping to reduce public debt levels, which should drop from 86.8 percent of GDP in 2015 to 84.4 percent in 2016.

An ambitious set of economic policy measures needs to be taken now to counter weak global growth. Fiscal policy must make use of available policy space to spur growth and productivity. On a national level, we need to see more stimulus from industrial and innovation policy. This could be achieved by three or four large member states without a full vote in the EU bodies. 

Contact

Dr. Wolfgang Eichert
Senior Manager
Research, Industrial and Economic Policy
BDI e.V.

+3227921014
+3227921037