EU

Confidence in the self-sustainability of the recovery has risen.
 Investment spending has become more broad-based and robust, pointing to potential upside risks
even with higher rates and tighter financing costs. However, the upside is capped by lack of structural
reforms, and increased fiscal spending will probably be inflationary without reforms.
 The pace of growth is far above our estimate of potential growth (around +1.0%) and is therefore
unsustainable.

Cyclical momentum will decline from the second half of the year, as output gaps close;
financial conditions will tighten as the ECB withdraws accommodation; the boost from net exports will
fade as Asia decelerates; and the stronger euro will drag on growth.