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Preparing For Europe’s Next Recession

In 2015, eurozone output barely exceeded its 2008 level, a dismal performance for which sluggish productivity growth cannot be blamed. Despite considerable slack in the economy, growth in 2015 was a disappointing 1.5%, and the ECB expects just 1.4% growth this year. This is far better than the contraction that occurred from 2011 to 2013, but one would expect a growth surge in an economy benefiting from a favorable exchange rate, record-low interest rates and the plunge in oil prices. Austerity is not the culprit. Whereas premature consolidation of public budgets was largely responsible for causing a double-dip recession five years ago, fiscal policy has been broadly neutral since 2015.

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