The Eurozone growth is expected to recover in Q2 2014 with GDP increasing by +0.3% (after +0.2% in the previous quarter). Growth rates are forecasted to remain at this level in Q3 and Q4.
The recovery is expected to be broad based across sectors and countries. The consolidation of the upturn will be mainly driven by progressive improvements in domestic demand and a marginal contribution by the external sector.
Private investment will continue to grow over the forecast horizon stimulated by the rise in production activity and increasing demand for new production capacity after the sharp adjustment following the financial crisis. However, consumption prospects remain subdued owing to the continuing labor market slack and the slow growth in real disposable income.
Under the assumptions that the oil price stabilizes at USD 114 per barrel and that the dollar/euro exchange rate fluctuates around 1.36, the headline inflation is expected to increase only marginally over the next two quarters, remaining well below the threshold of 2%.
Key downside risks to this scenario comprise increases in the savings rate of private households owing to deleveraging, a weaker external demand from emerging economies, especially from Asia and Latin America, as well as an escalation of international tensions in Eastern Europe and of the military conflict in Iraq and Syria.