Pernille Bomholdt Henneberg, Senior Analyst at Danske Bank, suggests that they are revising their euro growth forecast lower due to external factors. Key Quotes “We have revised our euro area GDP growth forecast for 2016 considerably lower from 1.8% to 1.5% (consensus 1.6%). The downward revision is mainly due to external factors that add uncertainty and hence are headwinds to business investments, while also keeping export growth subdued. Across the different growth drivers we expect the following. 1. Very modest growth in investments as Brexit risks, financial turmoil and global growth weakness all imply that businesses will be cautious in terms of initiating new investments. These uncertainties should dominate the support to investments from stronger domestic demand, improved bank lending and lower producer prices as the experience after the financial crisis is that businesses step on the brakes once there is some uncertainty. 2. Weaker export growth as the global manufacturing sector is still struggling to recover with both US ISM and Chinese PMIs below 50. Added to this, exporters are faced with headwind from the stronger effective EUR. From a longer-term perspective, the re-balancing of the Chinese economy from export-led to more service sector-driven growth should imply lower average export growth in the euro area. 3. Private consumption should remain solid and be the main driver of the recovery. The continued low oil price together with considerable progress in the labour market (actual unemployment rate is 10.3% compared to the structural level of 9.8%) and the still high pent-up demand should keep growth in private consumption around pre-crisis levels. 4. Cheaper and more accessible bank lending to the private sector should continue to support the domestic driven recovery. The lending impulses point to an ongoing recovery and in Q1, banks still reported increasing demand for loans from enterprises for fixed investments. 5. Fiscal headwinds continue to fade and in 2016, the fiscal space in some countries should result in a small tailwind to GDP growth. The increased focus on a need for fiscal stimulus instead of only using monetary policy easing, should benefit GDP growth in coming years. We still look for stronger growth of 1.8% in 2017 (consensus 1.7%). Most of the current uncertainties should fade and hence support an investment-led re-acceleration in activity.” For more information, read our latest forex news.