Country Economic Forecasts > Eurozone

The news over the past month supports our initial assessment that the UK referendum result will be primarily a political rather than economic shock. The slowdown in Eurozone growth to 0.3% q/q in Q2 revealed by the latest flash GDP figures was in line with our expectations, and largely down to temporary supports to growth in Q1 coming to an end. Meanwhile, although equity prices have not fully reversed the post-Brexit plunges, the falls seem unlikely to trigger major wealth-related effects on activity. And ten-year government bond yields have fallen, dampening fears of Brexit reigniting the Eurozone crisis. Finally, the closely-watched PMI and EC survey indicators both inched up in July.Overall therefore, the story that we have been telling for some time that stronger underlying domestic fundamentals will ensure that the solid economic recovery continues remains firmly intact. While we have assumed that Brexit has some negative effects on exports and investment in particular, we still expect a period of above-trend growth with the economy expanding by 1.6% this year and 1.5% in the following two years, which is a bit more optimistic than the consensus.