Main Content

Euro-zone Economic Outlook April 2009

Still in recession

Euro-zone real GDP decreased sharply in Q4 2008, by -1.6%, after -0.3% in Q3. GDP is expected to contract strongly again in Q1 2009 (-1.9%), as well as in Q2 (-0.6%) and in Q3 (-0.2%) albeit more moderately assuming supportive public policies.

Industrial production fell heavily in Q4 2008 (-5.3%) and should continue to decline over the forecast horizon, as implied by industrial business surveys. Private consumption is likely to diminish further: real income is expected to go down in the quarters ahead, and consumer surveys report low confidence over future economic conditions. The global economic recession, tighter credit-access and lower pressure on productive capacity will likely continue to undermine investment.

Assuming the oil price at USD45/barrel (Brent) and an exchange rate fluctuating around USD1.35 per euro over the forecast horizon, euro-zone inflation is projected to decline to 0.6% in Q1 2009 (end-of-quarter, y-o-y)  and to - 0.2% in Q2 and Q3, benefiting from a positive base effect from lower food and energy prices. However, the euro-zone should not be near deflation since core inflation should remain clearly positive (around 1.5%).


Stefan Lautenbacher

Ifo Institute
Ifo Center for Business Cycle Analysis and Surveys
Phone: +49(0)89/9224-1265
Fax: +49(0)89/985369
Email: lautenbacher @

Short URL: