Scenarios for European growth are narrow

Subject

European economic outlook.

Significance

European economic growth is set to continue on a downward trend and might turn negative. Despite the need for substantial macroeconomic expansion, it is difficult to envision a scenario in which it can be engineered within Europe, while pressures outside the EU will make the economic environment more fragile.

Impacts

• Only a recession in Germany which triggers a strong political backlash could see Berlin implement a significant fiscal stimulus package.
• While Europe’s dependency on Saudi oil is low, a prolonged decline in production would add to pressure on its economy.
• Italy’s new government will respect EU fiscal rules and reduce concerns that Italy could leave the euro.