Euro zone economic growth has slowed since the start of the year and inflation probably won't reach the European Central Bank's 2 percent target ceiling until at least 2017, a Reuters poll found. The predictions come after six months of European Central Bank stimulus, making them disappointing reading for policymakers struggling to bolster growth and produce any meaningful rise in prices.
Gross domestic product data for the second quarter is due on Friday and is forecast at 0.4 percent. The rate won't deviate from that through the end of 2016, the survey of over 60 economists taken this week predicted. Those medians are not very different from the 0.3 to 0.5 percent quarterly growth that economists forecast in nearly every Reuters survey during 2010 and 2011, which included the pinnacle of the euro area debt crisis.
The picture for inflation is no better, with forecasts largely trimmed across the horizon. Inflation is expected to rise to 0.2 percent this quarter and 0.7 percent next, down from the 0.4 and 0.8 percent forecast in last month's poll. Predictions for the quarters until the end of next year were also lowered by at least a tenth of a percentage point.
Medians for the full-year averages were unchanged, though, at 0.2 percent for 2015, 1.3 for 2016 and 1.5 percent for 2017. "Lower oil prices and the decline in the euro exchange rate have helped to boost the economy, supporting real growth in household spending and providing some uplift to exports," said Jessica Hinds, European economist at Capital Economics.
"But unless oil prices and the euro fall substantially further, which we do not expect, these forces are likely to fade in the second half of this year and in early 2016." After shedding nearly 7 percent so far this year, the euro will weaken only slightly over the next 12 months, a separate Reuters survey found last week. And another monthly poll of analysts predicted oil prices are set to rebound from six-month lows at the end of the year and continue to climb in 2016.
Should those forecasts prove accurate, they might end any expectations that ECB stimulus, a weaker currency and a consumer spending boost from low oil prices will boost GDP growth. "The market seems to have become less convinced about the strength of the recovery and the ability of the ECB to bring inflation back to target. We tend to agree," Elwin de Groot at Rabobank wrote.
Only three of 22 economists who answered an additional question in the survey expect inflation to reach the ECB's target around the time the bank's 60 billion-euro-a-month quantitative easing programme is due to end in late 2016. Most said that won't happen until 2017. Two said 2019.
Add the risk of a Greek exit from the euro zone - now in the background but not out of sight - and the question of extending or widening the ECB's QE programme might be raised. Still, 25 of 28 forecasters said the economy is on a sustainable path to recovery. "With the exception of Greece, the worst of the structural economic problems are either over or are being dealt with accordingly," said Kallum Pickering, a senior economist at Berenberg.
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