Economic outlook for the Euro area in 2011 and 2012

Abstract

• The worldwide upswing has lost momentum, but it will overcome the present slowdown. Monetary policy is overall still accommodative, and growth dynamics continue to be high in emerging market countries. • For the euro area, we expect GDP to grow by around 1.9% in 2011 and 1.7% in 2012, not enough to bring the unemployment rate back significantly below 10%. In fact, in a large core region of the euro area the upswing is well under way; this region includes, apart from Germany and some smaller economies, France, Belgium and the Netherlands. However, the crisis of confidence in the ability of EU institutions to master the fiscal crises is a major threat to the continuation of the upswing. • Our industrial production growth forecast remains stable at 3.6% for 2012, while the slight upwards revision for this year, up to 5.8%, is due to the expected improvement in investment dynamics this year that compensates the downwards revision of our external demand forecast. • In a context of energy prices moderation, the upwards revision of our core inflation expectations is responsible for the increase in our total HICP inflation forecasts for 2011 and 2012, up to 2.7% and 1.7% respectively. However, we still believe that the reduction in the expansive stance of monetary policy will be slow, due to the potential damaging effects that an all too rapid monetary policy normalization might have on exports, industrial production and growth.