Despite a short lived revival in the eurozone’s economy earlier this year, Patrick Artus, Natixis’ Chief Economist, argues that Europe will need to generate growth from within if it wants to escape a rise in inflation.
Writing for Bloomberg‘s newsletter, Artus points out that the euro area has been benefiting from a double fillip: first, the fall in energy prices caused by the collapse in the oil price, which has boosted consumer spending — the main engine of the recovery; and second, the euro’s depreciation, which has given the region a competitive advantage, boosting domestic exports and protecting its economies from deflation. Yet, despite this, growth has slackened to 0.4 percent in the second quarter and 0.3 percent in the third.
For Europe to avoid inflation in 2016, it needs to kick-start growth from within.
For this endogenous growth to occur, the euro area will have to fulfil the following three conditions: first, there must be an upturn in household credit, a fall in the household savings rate and an increase in housing investment; second, an increase in job creation; and third, there must be a more vigorous pick-up in corporate investment.
The broader picture is that the current euro-area recovery, while intact, lacks vigor to a worrying extent — and this will only intensify in the new year.
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