Economic outlook for the Euro area in 2013 and 2014

Abstract

-- In autumn 2013, the expansion of world output has slightly accelerated. The recovery of advanced economies has gathered pace in the first half of the year, and since summer, the slowdown of the Chinese economy has stopped. In other BRIC countries, however, growth appears to be on a downward path. -- The recovery in the euro area is partly a result of special effects such as a rebound of construction after a particularly cold winter. Other positive factors, however, are longer lasting. Above all, doubts about the future of the currency union have receded substantially. As a consequence, private households and firms are more prepared to take spending decisions. For these reasons, we have revised upward our GDP forecasts for 2013, to -0.3 per cent lower in 2013 than in 2012 (from -0.5 expected in the summer). -- For 2014, we expect a GDP growth of about 1.0% that will keep unemployment at similar levels to the ones observed in 2013 (12.3%). However, the strength of the recovery in 2014 will, to a large extent, depend on financial conditions for private households and firms, in particular in Spain and Italy. The question whether banks will be able and willing to expand credit depends on their own refinancing conditions. In fact, rapid improvements cannot be expected, because risks in the balance sheets of the banks will only very slowly decline as the economy is recovering. -- Our inflation expectations for 2013 have moderated to a y-o-y rate of 1.5%, and they remain subdued also in 2014, at about 1.4%. Taking this into account and despite the improving growth figures, monetary policy in the euro area is expected to remain markedly accommodative in the short to medium term, as reflected by the ECB’s forward guidance strategy.