The economy in the euro area continues to grow strongly.
Real GDP is expected to increase by +0.6% in Q4 2017 and Q1 2018, thus maintaining the same pace of expansion as in the four quarters before. A slight slowdown to +0.5% is expected only in Q2 2018.
The drivers of expansion are investments. Private consumption is also rising sharply, but at slower pace compared to the first half of 2017.
Inflation in the euro area is expected to drop from 1.4% in Q4 2017 to 1.2% in Q1 2018. This is due to base effects resulting from increases in energy and food prices last winter. In Q2 2018 inflation is projected to pick up again to 1.4%. Risk premia compression and increased financial investors’ risk-taking behaviour in particular asset markets could lead to large asset price corrections.
Turmoil and substantial losses in financial markets would have negative consequences for the real economy as well.