The outlook for the European economy has been downgraded during the first six months of the year, as the anaemic growth predicted at the start of the year has yet to materialise. The Eurozone continues to be tested, with recession and political challenges in Cyprus, Italy and Portugal.
Nonetheless, the currency area has proved more stable and better equipped to face these challenges, and although much remains to be done to ensure long term stability, the groundwork is being laid for a tentative recovery by the end of this year.
The pace of upturn is then anticipated to gain momentum during the following four years, aided by an improving global economy, the gradual winding down of austerity pro-grammes, higher confidence and a continuation of loose monetary policy. Although the expected unwinding of quantitative easing in the US is likely to create volatility in global bond markets – a difficulty all central banks will eventually face – with inflation moving below target and recovery muted, we do not expect European central banks to follow suit until well into the second half of the decade.
Source : Deutsche Asset & Wealth management