The eurozone's economy will continue to see robust expansion for at least the next two years, though the recovery remains challenged by a modest contribution from bank loans and considerable slack in the labor market, S&P Global Ratings said in a report in which it raised its growth forecasts.
"The eurozone clocked up its largest ever trade surplus in September, with the overall balance in goods rising to €35 billion, which hints at no loss of momentum into 2018," said Jean-Michel Six, chief economist for Europe, the Middle East, and Africa at S&P.
S&P raised its GDP growth forecast for eurozone to 2.3% in 2017 and 2.0% in 2018, from its previous forecasts of 2.2% growth in 2017 and 1.8% in 2018.
"We nevertheless see at least two economic challenges still in place: the slow decline in unemployment, and a modest contribution so far to the upswing from bank loans," Six said.
A significant amount of slack still remains in the labor market, which could explain why wage dynamics continue to be weak — something that has puzzled the European Central Bank. The rating agency said the rise in employment during the second quarter is supporting recovery in real incomes and household consumption, but more than half of the new jobs are limited to Germany and Spain and a significant proportion of employment consists of part-time and temporary jobs.
A large amount of nonperforming loans are concentrated in more vulnerable banking systems and additional regulations have restricted bank lending. "A more pronounced rebound in bank lending would provide additional fuel to the current upturn," S&P said.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.
