Eurozone growth to be significantly higher in 2017 - HSBC

Stronger investment prospects and outturns means that the research team at HSBC has made sharp upward revisions to their eurozone investment forecasts and now expect real investment to grow 5.5% in 2017 and 2.9% in 2018 (up from 1.8% and 2.3% respectively). 

Key Quotes

“In addition, a higher euro and lower energy prices should reduce households' income squeeze, so we also nudge up consumption growth.”

“The impact of these changes is to raise our 2017 GDP growth forecast by 0.4pp to 1.9%.  But our view that investment cannot sustain the current pace for long, and the fact that wage growth is likely to remain contained, means we nudge up 2018 growth by just 0.2pp to 1.6%.”

“Despite faster growth, inflation has evolved broadly as expected at the start of the year.  Inflation peaked at 2.0% in February but has already fallen back to 1.4% according to the flash estimate for May.  Core inflation was just 0.9% in May.  We expect headline inflation to remain around its current level throughout 2017, with core rising only very slowly.”

“Ongoing slack and underemployment should contain wage growth in much of the eurozone 'big 4'.  Even in Germany where the labour market is tight, the low frequency of pay bargaining means the next big settlement deals are not expected until early 2018.  The ECB has repeatedly made the point that underemployment and changes to labour market structure mean that the rising growth environment has not translated into wage and inflation pressure.”