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Euro-zone Economic Outlook October 2009

A fragile pick-up

Euro-zone GDP stabilized in Q2 (-0.2 %), in contrast with the fall recorded in Q1 (-2.5 %), owing to the world trade rebound in Q2 and to a rise in consumption in the wake of governments’ fiscal packages and scrappage bonus schemes for cars.

Euro-zone growth is expected to pick-up but to remain fragile at the forecast horizon (+0.4 % in Q3, +0.2% in Q4 and Q1 2010). Private consumption is expected to grow by +0.2 % in Q3 but to diminish in Q4 (-0.1 %) and stagnate in Q1 2010, as the labour  market is still deteriorating, inflation is rising and the boost to income provided by the stimulus plans is likely to wane in Q4.

Investment should diminish further but at a slowing pace: production capacities are largely under-used and credit conditions are likely to remain restrictive despite the normalization of the monetary and financial markets.

On the assumption that the oil price stabilizes at USD 70 per barrel of Brent and that the dollar/euro exchange rate fluctuates around 1.46 over the forecast horizon, inflation should rise to 1.0% in December 2009 and March 2010.


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 @

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