Economic outlook for the Euro area in 2014 and 2015

Abstract

-- The recovery of the world economy starting by mid-2012 is now being consolidated. Although growth dynamics are currently less marked in emerging markets countries, the situation of the advanced economies has significantly improved. World trade is expected to grow again close to 5% during 2014 and 2015. -- The euro area economy has left the recession behind during 2013. Low interest rates in a context of price stability, the progressive improvement in fiscal policy and the slow recovery of confidence are the main drivers for this upturn. For 2014 and 2015, we expect a GDP growth of 1.2% and 1.6%, respectively. -- Confidence is improving as real incomes have stopped falling in 2013 and net wealth of private households has started rising again due to the upward trend of housing prices. However, euro area labour markets are still out of balance, although the unemployment rate is no longer increasing in most euro area countries. -- Our inflation forecast for 2014 is 0.8%. In 2015 inflation will also remain subdued, at about 1.3%. However, the probability of an area wide deflation in the next year is very low. -- The main uncertainty for these forecasts is related to financing conditions of the euro area. Although external financing costs for firms are now at a record low for about a year, the volume of credit keeps declining and the situation could worsen depending on the outcome of the ECB Asset Quality Review and the way the single supervisory mechanism is implemented.