Friday, January 10, 2014

10/1/2014: Ifo forecast for Euro area economic growth Q1-Q2 2014

German Ifo institute published its projections for euro area economic outlook for 2014. Here are the details:
  • "As projected, GDP in the Eurozone expanded by a meagre 0.1% in Q3 2013, as export growth fell sharply."
  • "Economic activity is expected to accelerate modestly over the forecast horizon (+0.2% in Q4 2013, +0.2% in Q1 2014 and +0.3% in Q2 2014) with a gradual shift in growth engines from external to domestic demand."
  • "Continued tight fiscal policy in many member states together with persistent labour-market slack conducing to a stagnant real disposable income will lead to limited private consumption growth."
  • "Investment is forecast to increase thanks to the gradual acceleration in activity and the need to renew production capacity after a marked phase of adjustment."
  • Under the assumptions that the oil price stabilizes at USD 110 per barrel and that the euro/dollar exchange rate fluctuates around 1.36, headline inflation is expected to remain well below 2% (0.9% in Q1 2014 and 1.1% in Q2 2014)."
  • "The major upside risk to this scenario is a stronger than expected investment growth, led by improved access to credit."
  • "A stagnation in private consumption triggered by continued labour market weakness and weaker external demand in emerging economies are key downside risks."

Full details available here:

Some charts.

First, for unimpressive growth outlook for the recovery forward, compared to the past, both pre-crisis and 2010-2011 period:

Summary of forecasts:
Inflation outlook, as a bonus offering the reflection on just how poorly the monetary policy in the euro area been performing: remember the ECB mandate is to keep inflation at below but close to 2%...

Core inflation above is matching the target solely in 2007-2008, off-target or close to being off-target in parts of 2006 and 2012, significantly off-target in H2 2009-Q1 2011 and Q2 2013-on. ECB updated forecasts for inflation are at 1.4 percent in 2013, 1.1 percent in 2014 and 1.3 percent in 2015, which means ECB is expecting inflation to miss its target for the next 2 years at least.

Here's a chart of the latest survey indicators for economic conditions in the euro area - current and forward looking from the Ifo network and the EU Commission:

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