Economic outlook for the Euro area in 2006 and 2007
Title: Economic outlook for the Euro area in 2006 and 2007
Editor(s): MARCELLINO, Massimiliano
Series/Number: EFN Report; Summer 2006
External link: http://efn.eui.eu
• In early summer, financial markets have brought some dark clouds over the bright state of the world economy. While the specific point in time of the downturn was a surprise, one main cause appears to be clear: worldwide monetary policy becomes ever less expansive, and its future path is now difficult to predict. As a consequence, markets lose liquidity and the risks for investors are rising. • The euro area economy started quite well into the year 2006. Exports surprised on the positive side; investment, however, was disappointing. This may partly be explained by weak construction activity caused by the long winter in some member countries. • In spite of the downturn on financial markets, fundamentals in the euro area are beneficial enough to support a continuation of the modest upswing: revisions for profits of European firms are on average positive and the real costs of financing expenditure for investment and consumption are still low. Investment will continue to benefit from the moderate evolution of labour costs. Employment will be further expanding, and increased job security will continue to slowly raise confidence of private households. • It is highly likely that inflation will not fall below 2% in 2006 and during the first months of 2007. This probability is over 60% for every month except September and October, and the likelihood of exceeding 2.5% is nearly 50% in quite a few months. In the second half of 2007, however, the probability of an inflation rate above 2% falls to 40%.
The European Forecasting Network (EFN) is a research group of European institutions, founded in 2001 under the auspices of the European Commission.
Type of Access: openAccess