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Oil price collapse gives euro zone some relief

The falling euro, cheap energy prices and "good policymaking" have helped bolster growth in the euro zone this year and the outlook for the remainder of 2015 looks even more positive, according to new forecast.

In a report out on Thursday, EY estimated that economies in the 19-country currency union grew by an average of 0.5 percent in the third quarter of 2015, up from 0.4 percent in the second quarter. It forecast 1.6 percent economic expansion for 2015 as a whole and 1.8 percent growth in 2016.

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Saudi Arabia oil production
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"The euro zone remains in a 'sweet spot,' benefiting from lower energy prices, a more competitive exchange rate and solid demand in the U.K and U.S.," Tom Rogers, senior economic adviser to the EY Eurozone Economic Forecast, said in a news release.

Weakness in oil prices boosted household incomes and households' views of labor market prospects are improving tentatively, the report said.

"With demand looking robust in the euro zone's key advanced economy export markets and renewed easing in oil prices, the outlook for the remainder of the year is positive," Rogers added.

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At under $50 per barrel, the price of oil is down 57 percent from its June 2014 peak. Prices are seen staying low, as U.S. shale producers start to cut costs and OPEC member-countries continue to pump out oil at high levels in their attempt to maintain market share.

A weaker euro is also a "welcome relief for euro zone firms," EY said, with the currency bloc posting the strongest year-on-year growth rate for four years in the second quarter of 2015. Faster growth in neighboring U.K. and the U.S. provided an additional boost.

EY's forecast that exports would grow by 4.8 percent this year, before easing to 4.0 percent in 2016 and 3.6 percent in 2017.

However, the market volatility in China and concerns about its economic slowdown are a downside risk for the euro zone, said EY.

"Forecasts for export growth are subject to greater risk than they have been for some time in the light of mounting uncertainty about the slowdown in China and associated recent financial market turbulence," Rogers said.

Similarly, ratings agency Standard & Poor's forecast on Wednesday that the euro zone's recovery would extend into the next couple of years, but that China could dent growth momentum. It added that if Chines growth came in significantly below expected, than Germany and the Netherlands would be the worst hit among the euro zone countries.

In addition, the ratings agency forecast that the European Central Bank would extend its quantitative easing program, most likely until mid-2018. It said the size of the stimulus program could reach 2.4 trillion euros ($2.7 trillion) – more than twice the original 1.1 trillion euros commitment.

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