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Today, we present our updated economic forecasts for 2015-16 and publish our 2017

projections for the first time. We expect the Eurozone recovery to continue, with real

GDP growth of 1.5% in 2015 (previously 1.4%) and 1.8% in 2016 (previously 1.9%),

followed by 1.8% in 2017. Nominal GDP growth should pick up more visibly, from

2.2% in 2015 to 2.9% in 2016 and 3.4% in 2017. We expect growth to be carried by

domestic demand, while the impact of foreign trade is likely to be slightly negative. The

key drivers of growth in 2016/17 should remain: (a) the ECB's easy monetary policy; (b)

low oil and commodity prices supporting household consumption; (c) fiscal policy

turning mildly growth-supportive; and (d) the recovery of credit conditions.

We expect inflation to recover from 0.6% y/y by end-2015 to 1.5% by end-2016 and

1.7% by end-2017, still below the ECB's target of 'below, but close to 2%'. We expect

the ECB to decide, on 3 December, to extend its QE programme (€60bn per month) by

3-6 months beyond September 2016 and to cut the deposit rate by 10bp to -30bp. We

project the ECB balance sheet to reach €3.5trn, or 33% of GDP, by March 2017.

Despite the ECB's easy policy stance, we expect EUR/USD to reclaim lost ground, to

1.16 by end-2016 and 1.20 by end-2017, helped by the Eurozone recovery.

We still expect 1.5% growth for Germany this year, but have cut our 2016 forecast to

1.9% from 2.1%, given increased external risks; yet, domestic demand should remain

solid. We turn even more positive on Italy as reforms seem to lift business confidence,

and upgrade our growth forecast to 0.8% from 0.6% for 2015 and to 1.5% from

1.4% for 2016. We also remain constructive on Spain.

A hard landing in China and more economic trouble in the EM world are currently the

biggest downside risks for the Eurozone, we think. Disruptive Fed tightening and

disturbances from domestic politics in Europe could also prove challenging. On the

positive side, a meaningful acceleration in structural reforms in the Eurozone and a

faster-than-expected recovery in credit could provide meaningful upside.

Outside of the Eurozone, the United Kingdom's solid growth continues, although the

pace has cooled a little. We forecast growth of 2.4% in 2015 and 2016, followed by

2.3% in 2017. While wage growth is picking up due to a tightening labour market,

external risks have led us to push back our call for the first BoE rate hike to May 2016.

There is a risk that the UK referendum on EU exit may weigh on growth. For

Switzerland, we forecast GDP growth of 1.0% for 2015, 1.4% for 2016 and 1.8% for

2017. Growth in Sweden should remain solid (3.0%/2.6% in 2016/2017), while the

outlook for Norway is more challenging, given lower oil prices. Monetary policy in the

Nordics and Switzerland is in the shadow of the ECB, and the Riksbank, Norges Bank

and SNB will need to maintain easy policy to keep their currencies in check.