The euro and prospects for growth in Europe

Anonymous

National Institute Economic Review, 2008, vol. 204, 22-32

Abstract: In 2008 and 2009, real GDP growth in the Euro Area is forecast to settle in the 1½–1¾ per cent range, ¼ to ½ percentage points less than expected in January. The downward revision in part reflects the downgrading in world growth prospects, in particular for the US. Recent economic indicators for Euro Area countries indeed remain relatively favourable. The most recent early indicators available for the start of 2008 are also conducive to moderate optimism. At around 2½ per cent for HICP both in 2008 and 2009, inflation projections are a little above the January forecast due to the pass-through of higher oil prices on domestic costs. The impact of energy prices on overall inflation has however been mitigated by the euro's continued appreciation, which has also contributed to prospects for slower growth. The main downside risks to the current forecast are linked to the high energy prices and to how European banks will respond to spillovers from the US subprime crisis.

Date: 2008
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