Euro-zone economic outlook

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.