Main Content

Euro-zone Economic Outlook July 2013

Recovery amid challenges

In the Eurozone, activity contracted by 0.3% in Q1 2013, falling for the sixth consecutive quarter. However, GDP growth is expected to turn slightly positive in Q2 2013 (+0.1%), with a mild acceleration over the following quarters (+0.2% in Q3 and +0.3% in Q4). The driving forces of the upturn will be a progressive improvement in exports and a marginal recovery of domestic demand in the second half of the year. Nevertheless, fiscal consolidation and ongoing deleveraging in corporate and banking sectors of several Eurozone economies will continue to weigh on economic growth.

Labor market conditions will remain unfavorable, placing an additional burden on disposable income and private consumption. Due to tight credit conditions and weak prospects for internal demand, gross fixed investment is also expected to remain weak. Exports growth and the need to replace an ageing capital stock will lead to a modest investment recovery in Q3 and Q4 2013 (+0.1% and +0.4% respectively). Under the assumption that Brent oil price remains stable at USD 103 per barrel in Q3 and Q4 and the euro/dollar exchange rate fluctuates around 1.30, inflation is projected to 1,3% in Q4. This reflects diminishing pressures from global commodity prices and weak international and internal demand. This forecast assumes that financial tensions in Europe do not escalate and a gradual unwinding of the monetary policy stimulus in the United States.


Short URL: www.ifo.de/w/YtSGBkZM