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European Economic Forecast – Spring 2016

European Commission, (2016), “European Economic Forecast – Spring 2016”, European Commission Institutional Paper 025, Μay

The European economy continues to expand modestly. Low oil prices, the relatively low exchange rate of the euro, very ample monetary policy and slightly supportive fiscal policy will continue to underpin growth this year. However, the lift from cheap oil is set to gradually wane and the lagged boost from the euro’s depreciation will soon have run its course. As a result, the pace of private consumption growth, the main motor of growth so far, is projected to slow down somewhat next year, even though employment gains and a modest acceleration in wage growth should partly compensate for the fading of these tailwinds. Support next year will mainly come from monetary policy, which the ECB has committed to keep expansionary for an extended period of time, while the fiscal stance is projected to turn neutral. At the same time, the conditions are in place for private investment to pick up over the forecast horizon, and the Investment Plan for Europe will move from project identification to implementation. In sum, the economy is forecast to continue growing on the back of slightly re-balanced domestic demand but growth is not expected to accelerate significantly.

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