The Eurozone faces a number of economic and political challenges next year, with Brexit just the tip of the iceberg in terms of potential economic shocks. Stagnant inflation is hurting the economy and whilst it has posted some gains in Q4, the ECB are a long way from their 2% target.
Whilst policymakers determine the future of the ECB’s current QE programme, investors remain cautious that an extension could be announced in December.
The Euro continues to fall against the Pound and US Dollar with some analysts predicting parity for the Euro vs US Dollar. The economic sentiment for the Eurozone is turning negative and could fuel further weakness for the Euro in 2017, the political landscape has also changed since Brexit and Trump which could create further selloffs.
Brexit and Donald Trump weigh heavily on the Euro
Trump has announced he will abandon TTP (Trans Pacific Partnership) in an effort to make the US more competitive and keep business on home soil, which puts the controversial TTIP (Transatlantic Trade and Investment Partnership) in jeopardy.
The deal provides a free trade agreement between the EU and US, by removing trade barriers and simplifying processes for overseas trade.
The President elect has promised to abandon the agreement on his first day in office.
Whilst the UK Government prepare for its Brexit Court hearing next week, Italy will hold a Referendum on banking reforms which could spell the end for PM Matteo Renzi.
The Prime Minister has promised to resign if Italy reject the reforms, which Reuters has suggested could put up to eight Italian banks at risk of collapse.
And with the rise of far-right wing political parties in Europe, Italy’s the 5-star movement have already snagged an opportunity if Renzi resigns next week. Furthermore, with the European elections next year further surprises could present themselves in the wake of Brexit and Trump. France’s National Front could see Marine Le Pen take the center stage whilst the Netherlands’ Geert Wilders is storming the polls and is set to become the next Prime Minister in March.
The political landscape is changing, and when you factor in a number of potential outcomes next year the Euro could be in for significant weakness.