Euro area economy likely grew strongly in Q1, consumption to remain main growth driver in 2016

Rise in real incomes in euro area from gradual recovery in the labor market and low inflation continue to underpin the currency bloc’s economic growth. In 2016, the economy is likely to be primarily driven by consumption again, while fiscal policy is also expected to be supportive, according to Lloyds Bank.  Investment trends are expected to rebound with the help of lower interest rates; however, political and economic uncertainty continues to be a major constrain, noted Lloyds Bank.

ECB’s additional policy easing in March will underpin growth in credit; however, pressure continues to be there on parts of banking sector to deleverage. Moreover, export growth is also expected to drop due to weak outlook of global growth, said Lloyds Bank.

Recent economic indicators such as retail sales and industrial production imply that the economic activity in euro area is strong in the first quarter and that the economy might expand beyond H2 2015’s 0.3% q/q growth. The economy is expected to grow strongly despite the survey evidence indicating towards softening consumer and business sentiment. The economic growth for the entire 2016 is likely to match that of 2015’s.

“We look for 1.6% expansion compared with 1.5% in 2015, weaker than our forecasts for the US (2.2%) and UK (2.0%)”, said Lloyds Bank.

Economic growth of Spain is likely to surpass the average of euro area; however, the growth is expected to decelerate to 2.8% in 2016 from 2015’s 3.2%. Meanwhile, economies of Italy, Germany and Franc are projected to be somewhat stronger than 2015’s, added Lloyds Bank.