In this video from October 2016, Henk Potts, Director of Global Research and Investments for Barclays, gives his views on Europe’s economic outlook.

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Video transcript

“We think the market is wrong simply to view Brexit through the lens of only what it means for the UK economy and only what it means for sterling.

We think it has much broader implications, for growth prospects for the Eurozone, and of course, for the single currency. We think it opens up a period of high economic and political uncertainty. It infringes upon the integration programme that’s required within the Eurozone to make it successful. Perhaps even casting doubt on Europe’s commitment to free trade and to globalisation.

In order for Europe to be successful, we know it has to go on this journey of economic, political, fiscal and banking integration. And it has been hard to commit to that, of course, given the fact that we have seen anaemic economic growth over the past few years, unemployment still remains very elevated in the Eurozone, at above 10%. There’s austerity fatigue, and the political backdrop has been incredibly fragile, so it’s hard to commit to that reform agenda. Brexit puts another roadblock in terms of that journey.

The other area of concern for policy makers in the Eurozone is the lack of inflation. We’ve seen little or no inflation over the past few years. In fact, you’ve got to go all the way back to 2013 – that was the last time Eurozone inflation was at the level the European Central Bank had targeted.

Eurozone inflation has been driven down by a number of factors – as we’ve seen elsewhere in the world. Lower food and fuel prices – but also, fundamentally weak demand as well. Where inflation goes from here in terms of the Eurozone will be influenced of course by commodity prices, and by currency movements as well. We’re forecasting very little inflation, just 0.2%, during the course of this year, 1.1% next year, and even as you look out to 2018, still talking about inflation below that European Central Bank target, maybe 1.6 or 1.8%. That puts a lot of pressure on the European Central Bank.

But as Mario Draghi says, “there’s only so much we can do”, it’s got to be back to those political leaders to commit to that reform agenda.

The key milestones to watch out for over the course of the next few months that will determine the shape of Europe: watch out for the constitutional referendum taking place in the beginning of December in Italy. And then we start to look forward to the electoral cycle taking place in France and in Germany next year. Absolutely vital, in terms of shaping the future of Europe.”

Henk Potts, Director of Global Research and Investments, Barclays.

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