Euro zone growth steady but modest — if political status quo remains

BRUSSELS: Euro zone economic growth will be steady but modest over the coming year, but that will depend partly on independent candidate Emmanuel Macron winning the French presidency next month, a Reuters poll of economists showed.
The results suggest forecasters, like investors and traders, appear unrattled by political uncertainty as France prepares for a presidential election in which far right and anti-European Union leader Marine Le Pen is polling strongly, although no major survey sees her winning.
France is the EU’s second biggest economy so turmoil there would weigh on the wider bloc.
“A win by the populist Marine Le Pen in the second round could result in a prolonged period of uncertainty as she attempts to negotiate better terms for France remaining in the EU.” said Beata Caranci, chief economist at TD Securities.
“This outcome would undoubtedly increase volatility in global financial markets, particularly in European equities, bonds, and currencies.”
A separate poll of foreign exchange strategists earlier this month showed the euro falling about 5 per cent to near 15-year lows and close to parity against the dollar in the immediate aftermath of a Le Pen win the vote. Still, the latest poll of over 80 economists showed predictions for euro zone growth and inflation have barely budged over the last two years of monthly Reuters surveys.
“Our macro views involve assumptions on not just policy but also politics, especially in Europe. For example, underlying our growth forecasts is the view that European elections will not lead to governments that try to take their countries out of the euro area,” noted Ajay Rajadhyaksha, head of macro research at Barclays.
When asked which candidate for the presidency would be best for French economic growth, 30 of 51 respondents said Emmanuel Macron, 19 said François Fillon and the remaining two economists said both. But none chose Marine Le Pen.
Economic growth in the euro zone is expected to be steady at 0.4 per cent in each quarter through the third quarter of next year, unchanged from last month’s poll. Median consensus for annual GDP growth for this year was 1.7 per cent and for next it was 1.6 per cent, in line with the International Monetary Fund’s latest projections. — Reuters

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