Looking at leading indicators and the eurozone economic outlook, the scene is set for strong growth, in our view. Taken literally, results from surveys including the purchasing manager indices (PMIs) and the economic sentiment index point to 3% to 4% year-on-year (YoY) growth.
Such a rate looks unlikely to us. Trend growth in the eurozone has been between 1% and 1.5% and without any strong stimulus from fiscal spending, a weak euro or low oil prices, an acceleration from the current 1.9% year-on-year rate is not what we foresee.
That does not mean we are negative on the eurozone economic outlook. Consumers may miss the fillip that falling inflation gave to their wage packets last year, but employment growth of more than 1% YoY and falling unemployment should support household income, even if the output gap is still large.
And there is room for investment to grow further. In the second quarter of 2017, capacity utilisation in the industrial sector crept to its highest in almost 10 years.
Financial conditions have remained favourable, with credit spreads holding close to record lows and bank credit to non-financial companies growing mildly.
Export growth has surged recently, although the impact on the overall economy was mitigated by an equivalent increase in imports.
Click here to read more of our expert views on the eurozone economic outlook.
