In times of increased uncertainty and with tailwinds from lower oil prices fading, the euro area economy is expected to expand at a moderate pace with GDP rising by 1.6 per cent and 1.5 per cent in 2017 and 2018, respectively. The economic impact of the decision of the United Kingdom to leave the EU is still hard to assess, given the high amount of uncertainty about the nature of the future relationship. So far the negative effects have been less pronounced than initially expected, but uncertainty could still substantially raise risk premia and weigh on investment, especially in the UK. Direct repercussions on growth in other European countries through trade linkages are so far mostly related to the devaluation of Sterling against the euro and likely to be rather limited, with Ireland and the Netherlands particularly affected. Indirect effects through uncertainties and changes in European policies triggered by the British decision could be significant but are much more difficult to assess.

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