Is the euro-zone’s upturn screeching to a halt?

The most recent official euro-zone data have been weak and the latest business surveys are consistent in their message that the economic expansion has lost momentum. A sanguine view of this is that firms are simply facing short-term capacity constraints as a result of unexpectedly-strong demand growth last year, and that these constraints can be easily overcome with stronger investment and more hiring. But with the unemployment rate now very low in some countries, some bottlenecks are likely to remain and these will weigh on growth. And there are also fundamental reasons why growth has slowed, such as last year’s appreciation of the euro and this year’s deterioration in equity and corporate bond markets. We think that the outlook remains healthy, but the period of accelerating growth is over.