Euro area growth to stay

Eurozone economic growth will hum along at a modest pace over the coming year, according to economists in a Reuters poll whose views have barely changed since the US election and five months after Britain voted to exit the EU.

Despite what appears to be a strong likelihood for a US interest rate rise next month, the European Central Bank (ECB) looks set to keep going the other way, announcing an extension to its quantitative easing programme beyond March 2017.

Following the shock from the Brexit vote, which hasn’t hit either UK or eurozone growth yet in a material way, it appears that political uncertainty will continue holding back the eurozone from making any more progress on growth.

Italy holds a referendum on constitutional reforms less than a week before the ECB’s policy meeting next month and there is a packed calendar next year with national elections scheduled in Germany, France and the Netherlands.

“The recent sequence of anti-establishment votes has brought upcoming political events in the euro area into sharper relief. With this in mind, and with both economic growth and consumer price inflation still tepid, we expect the ECB to delay and pray when it meets next month,” Florian Baier, economist at Fathom Financial Consulting, wrote in a note.

Minutes from the ECB’s last month meeting released on Thursday showed policymakers suggested that December would be a key month for the future course of policy.

There was also evidence of concern about weaker wage growth, suggesting further easing is likely.

Over 80% of the economists in the Reuters poll who had a view on what the ECB would probably do in December picked an extension to the QE programme beyond the originally-planned end in March 2017 as the most likely option.

Some of those economists suggested the central bank would need to make technical adjustments to its quantitative easing programme to widen the universe of eligible bonds it can buy.

A few respondents to the survey said the ECB could expand its monthly QE amount from the current €80bn or change the composition of assets it buys.

Only one forecaster responded by saying the ECB would make no further changes to policy.