Economic growth in the eurozone remained relatively steady in 2016 and actually ended the year on a strong note despite rising political uncertainties both within the eurozone area and further afield. Growth in the eurozone was relatively broad based, with all countries contributing. 2016 was characterized by further quantitative easing and political uncertainty, and this seems likely to intensify this year given forthcoming elections in the Netherlands, France, Italy and Germany; the UK triggering Article 50 to leave the EU; and the potential disruption arising from the introduction of President Trump's protectionist policies. Increasingly, Europe is being exposed to global risks such as rising nationalism and migration
Looking ahead to 2017, there are a number of risks emerging in the eurozone. Inflation is rising due to rising energy costs, which are set to boost headline inflation to around 1.5% by the year end. There are concerns that higher rates of inflation will reduce wage growth and undermine the consumer spending-based recovery, although, it is currently anticipated that household spending will remain fairly resilient as inflation is offset by other positive developments. However, a key risk to growth is the mounting political uncertainty in the eurozone, which could dampen growth and cause businesses to delay or cancel planned investment. We remain cautious on political developments and the outlook.
Source : UBS AG