Euro-zone economic outlook

After a strong rebound in Q1 (0.8%), GDP growth in the Euro-zone is expected to decelerate markedly in Q2 (0.3%) and then grow at a moderate rate in Q3 and Q4 (0.4%).

Due to less dynamic emerging markets and world trade, domestic demand is seen to be the main driving force of the GDP growth over the forecasting horizon. Nevertheless, private consumption in the Euro-zone should lose momentum in Q2, mainly as a result of the expiration of the wreckage bonus in France.

Consumption should be more robust in H2 (0.3% per quarter), driven by a moderate growth in real wages and inflation stabilization. Under the assumption that Brent oil price stabilizes at USD 115 per barrel and that the euro/dollar exchange rate fluctuates around 1.44 over the forecasting horizon, inflation should hover around 2.7%.

After a strong deceleration in Q2, mainly as a correction of the rebound in construction in Q1, total investment should reverse to a moderate recovery trend in Q3 and Q4. The expansion is due to the still accommodating monetary conditions, the gradually improving firms’ profit prospects and the convergence of capacity utilization to its long run average. The euro area-wide development masks a substantial heterogeneity in the cyclical position of individual member States.