Current moderate pace of Euroarea growth to continue in H2 2016

Euro area GDP growth slowed to 0.3 percent q/q in Q2 after a strong first-quarter outturn of 0.6 percent q/q. The outlook for the second half of the year and beyond is clouded by uncertainties about the potential impact of the UK’s EU referendum result. Nevertheless, latest survey indicators have been relatively reassuring and suggest that any downshift in economic growth may be limited, at least in the short term.

Minutes of the July ECB minutes showed that there was broad agreement that the monetary policy measures in place since June 2014 continued to contribute to favourable bank lending conditions and to a strengthening of credit growth.

Inflation was expected to increase further over the coming years owing to stronger domestic demand, tighter labour markets and improved corporate profitability, supported by the pass-through of the ECB’s monetary policy measures. Eurozone unemployment rate remains high at 10.1 percent, but it is at a 5-year low and is on course to fall further. Domestic demand will continue to be supported by improving labour market conditions.

"Overall, we look for the current moderate pace of growth to continue in the second half of the year, with GDP set to rise 1.6 percent for the year as a whole. We expect the growth rate for 2017 to be slightly lower at 1.4 percent," said Lloyds Bank in a report.