A Cushman & Wakefield Research Publication

Cushman & Wakefield

ECONOMIC DRIVERS

The economic recovery in the

Eurozone

continues to gain

momentum as political risk recedes following the French

presidential election. Although unemployment continues to fall,

there is little upward pressure on wages which should mean

the recent rise in inflation, due to energy prices, is temporary.

The lack of underlying inflationary pressure so far has led the

European Central Bank (ECB) to conclude that it is unlikely

to make any meaningful policy changes anytime soon but the

recent run of positive survey data, if sustained, could change

their view. In particular, there is no plan to increase interest

rates before further adjusting the pace of asset purchases,

which could taper as early as Q4 this year, and there are no

expectations of further liquidity operations – all of which is

supportive of growth in the near term.

Europe

The

economy has performed better than expected

since the EU referendum in mid-2016, supported by healthy

consumer demand. However, there is growing concern over

how long this consumer resilience can continue given the

political uncertainty caused by the snap election in June—

which resulted in a weakened Conservative government—and

the commencement of Brexit negotiations. In addition, the

main impact from Brexit to date has been the 10% depreciation

in pound sterling which is helping to improve UK exporters’

competitive advantage relative to their European counterparts.

But Brexit is also pushing up inflation as costs get passed on

through the supply chain. Higher inflation is eating into real

wages which are now declining for the first time since 2014.

Even so, consumer spending still remains resilient although

there are concerns over how long this can continue.