EFN report on the Euro area outlook

Abstract

The economic performance of the Euro area continues to disappoint. This is the Fourth Report of the European Forecasting Network. Once again we have had to revise down our forecast for economic prospects over the next two years. The recovery in economic activity that we have been expecting to appear during 2003 has not materialised. Assailed by a number of negative shocks from high oil prices, an appreciating Euro against the dollar, continuing geopolitical uncertainty, and a slow movement towards the liberalisation of labour and goods markets, economic recovery continues to be sluggish. GDP will only grow by 0.5% in 2003 and just 1.5% in 2004. In both years GDP growth will be reliant upon the strength of the services sector. Indeed, on a quarter on quarter basis Euro area GDP declined by 0.1% in the second quarter. We now believe that the chances of a technical recession of two consecutive falls in GDP in the Euro area during 2003 is as high as forty percent.