Global uncertainty adds to downside risks

The European economy has performed relatively well over recent months amid financial market unrest and signs of a slowdown elsewhere. But the euro-zone’s exporters are still not benefitting from the weakness of the exchange rate as much as had been hoped and the uncertain global environment is a downside risk. Meanwhile, domestic demand is being held back by fiscal austerity and weak wage growth. This backdrop should see the ECB increase its policy support soon and other European central banks, with the notable exception of the Bank of England, may need to follow suit.