- December 1, 2015: Vol. 9, Number 11

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We keep going: Will crashing China break in Europe?

by Keith Breslauer

China’s economic slowdown will hinder Europe’s economic recovery. Euro zone GDP forecasts have been slashed by the European Central Bank, by 0.1 percent to a less than thrilling 1.5 percent for 2015 and by 0.2 percent to a mediocre 1.7 percent for 2016. Inflation rate forecasts have also dropped, raising concerns about deflation. In response to this threat, the ECB’s chief, Mario Draghi, has hinted at extending the bank’s massive €1.2 trillion quantitative easing programme.

But we have been in a worse place before. Only in summer 2014 Greece was expected to crash out of the euro. Then there are Europe’s greatest victims of the 2008 crash — due in no small part to their property markets — Spain and Ireland. Yet, after a period of austerity, there has been a return to liquidity in those countries that has led to growth. The latest forecasts for 2015 are for the Irish economy to expand by 6 percent and for the Spanish economy to grow by 3.3 percent.

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