(Reuters) - Euro zone economic growth will lose momentum after a strong start to 2016, according to economists in a Reuters poll, who said the biggest risks were Britain leaving the European Union and an unexpected U.S. slowdown.
Overcoming years of poor health, the bloc’s economy grew 0.6 percent in the first quarter, outstripping both the United States and Britain, but economists have become more pessimistic.
“The euro zone is cyclically rebounding, but risks to the outlook are now more tilted to the downside. Turning the rebound into a structural recovery will be tricky without additional fiscal support and more investment,” economists at Roubini Global Economics wrote in a recent note to clients.
Gross domestic product will rise 0.3 percent in the current quarter and then grow at a quarterly rate of 0.4 percent for a year. For the whole year, growth is expected to average 1.5 percent, the median in the poll of over 70 economists taken this week predicted.
The quarterly estimates have hardly budged in two years of Reuters polls and highlights how entrenched the mediocre outlook for growth is among professional forecasters, despite successive waves of stimulus from the European Central Bank.
“Many of the risks (to the euro zone) relate to forthcoming political issues. The migrant crisis is still unresolved, and the number of refugees reaching EU borders is accelerating,” said Karen Ward, chief European economist at HSBC in London.
The other key event was Britain’s referendum in June on EU membership which, whatever its outcome “will likely have broader implications for Europe as it signals a degree of electoral discontent with EU-wide policies.”
Over half of 83 responses to a question about the top two risks facing the euro zone economy in the coming year cited Brexit and unexpected U.S. economic slowdown.
A slowdown in China, another debt crisis in Greece and a surge in oil and other commodity prices were also mentioned.
The U.S. economy barely grew in the first quarter, and a separate Reuters poll showed a Federal Reserve interest rate hike now won’t come until September. [ECILT/US]
While the Fed still looks set to tighten this year, ECB President Mario Draghi has progressively eased policy, including cutting the deposit rate to -0.40 percent.
That rate can only go as low as -0.50 percent before it becomes counterproductive, according to the consensus from economists who answered an extra question, with some saying it has already started hurting banks by squeezing profits.
The ECB is mid-way through an asset purchase program having bought about 800 billion euros of mostly sovereign debt, and recently announced plans to also start buying corporate bonds.
But the euro has strengthened over 2 percent against the dollar since its last policy meeting, hitting hopes of importing inflation from a weak currency.
Some economists said the ECB’s measures would take time to show results but were still reluctant to forecast a pickup in growth or inflation even a year from now.
The inflation forecast was largely trimmed across the poll horizon. For 2016, 0.2 percent is now expected, down from 0.3 percent in April’s poll and a fraction of the ECB’s 2 percent target.
“Inflation is likely to stay significantly below target so we think the ECB will have to expand the horizon of the quantitative easing program beyond March 2017,” Ward at HSBC added.
(For poll stories on other economies)
Polling and Analysis by Deepti Govind, Sujith Pai and Khushboo Mittal; editing by John Stonestreet