Eurozone economy absorbs Brexit shock, but Trump clouds outlook

Berlin — The eurozone economy grew steadily in the three months after Britain’s shock vote in June to leave the European Union but US President-elect Donald Trump’s protectionist rhetoric is clouding the outlook for 2017.

Uncertainty about the trade policy Trump will pursue once he takes office is weighing on eurozone sentiment, increasing the likelihood that the European Central Bank will retain its loose monetary policy to support growth in the 19-country bloc.

Gross domestic product (GDP) in the eurozone expanded 0.3% in the third quarter, on par with the April-June period, the EU’s statistics office said on Tuesday, confirming an earlier estimate.

The data showed “the pace of growth in spring could be maintained despite the Brexit vote in June,” NordLB analyst Christian Lips said. “That was far from self-evident.”

But “we now have the election of Donald Trump as the new US president, whose policy is less predictable and whose political inexperience and impulsiveness are likely to be a consistent source of irritation,” Lips said.

Uncertainty about the length and outcome of Brexit negotiations between London and Brussels is also expected to limit the eurozone’s medium-term growth prospects while Trump’s talk of protectionism has unnerved big exporters such as Germany.

Europe’s largest economy eked out weaker-than-expected growth of 0.2% in the third quarter as foreign trade slowed.

“Positive impulses on the quarter came mainly from domestic demand,” the German Federal Statistics Office said. “Both household and state spending managed to increase further.” Higher investment in construction also contributed to overall growth, suggesting the ECB’s record-low interest rates are supporting the economic recovery.

“In our view, the latest less dynamic growth figure is not a reason to be concerned,” UniCredit economist Andreas Rees said, adding that most forward-looking data suggested the Q3 slowdown was a bump in the road, not a signal of longer-lasting weakness.

DekaBank analyst Andreas Scheuerle agreed, saying the signs for the final quarter were positive as global demand for German goods was picking up again.

Supporting this view, a survey by the Mannheim-based ZEW institute showed that the mood among German investors improved more than expected in November.

ZEW president Achim Wambach attributed the fourth consecutive monthly rise in the economic sentiment indicator to positive data in the US and China.

“The election of Donald Trump as US president and the resulting political and economic uncertainties have, however, had an impact,” Wambach said, adding that responses received after Trump’s victory were less upbeat than those before.

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