With a growth rate in seasonally adjusted gross domestic product (GDP) of +0.5 percent on the prior quarter, the European Monetary Union (EMU) posted a gratifying result at year-end after two somewhat modest quarters. For 2016 as a whole, economic growth therefore ran at +1.7 percent on the year. Given the economic problems and risks that accompanied the year 2016, it was a thoroughly solid result. At the beginning of 2016, there were still massive concerns that, for example, the burst stock market bubble and a hard landing in China could drag the entire global economy downwards. Moreover, the decision by the British population in favour of a Brexit led in the short term to massive price corrections in the international financial markets. However, neither of these was able to sustainably damage the economy in the Eurozone.
Among the EMU member states some have likewise already released initial growth figures. Spain reported economic growth of +0.7 percent in the final quarter, France +0.4 percent, Belgium +0.4 percent and Austria +0.6 percent. In other words, the economic momentum in most countries that have published flash estimates is somewhat up on the third quarter.
In the wake of the strong growth in Q4 2016, the outlook for the still young year of 2017 gives grounds for hoping that the economic recovery will continue in the EMU. It is not just that the recently good growth performance lays an exceptionally stable basis for 2017, as the first early sentiment indicators on assessments of the economic situation and the growth prospects for the EMU likewise point to a good start to the year.
That said, it will be difficult to maintain the higher pace of growth in the last three months of 2016 across all of 2017. The current year again sees numerous existing uncertainties persist, with new ones arising. Such factors include the beginning and course of the exit negotiations between the United Kingdom and the European Union, the further shape of US economic policy under the new President Donald Trump, and finally the parliamentary and/or presidential elections in the Netherlands, France and Germany. We do not expect that this will cause economic growth to come to a standstill, but after GDP growth of +1.7 percent last year, an increase of just +1.5 percent is likely in 2017.
If inflation picks up again, this could likewise slow down growth. In January, the inflation rate climbed very clearly from +1.1 to +1.8 percent. The main reasons were the higher prices for energy on an annual comparison and higher food prices. While in the past two years the low inflation rate for consumer prices created additional scope for private households to spend, inflation may now curb private consumer spending somewhat in the EMU.