Euro-zone economic outlook

Euro-zone GDP growth remained subdued in Q3 2011 at 0.1%: a technical rebound for a few GDP components was partly offset by the deceleration in external demand, increased uncertainty stemming from the ongoing European sovereign debt crisis as well as fiscal consolidation in several member states.

Private consumption expanded only modestly (+0.2%) while investment fell slightly (-0.1%). Taking stock of the deterioration of business surveys since the summer, the euro zone is expected to undergo a short recession with GDP declining around the turn of the year (-0.3% in Q4 2011 and -0.2% in Q1 2012) and stagnating in Q2 2012. Household consumption will be held back by fiscal consolidation and deteriorating labour market conditions (-0.1% in Q4 2011 and zero in both Q1 and Q2 2012). Due to weak public investment and the expected postponement of many private sector projects, total investment is expected to fall over the forecast horizon. Under the assumption that international oil prices will be stable over the forecast horizon at around USD 104 per barrel for Brent) and that the euro/dollar exchange rate fluctuates around 1.35, inflation is expected to reach 1.9% in June 2012, down from 2.8% in December 2011. This scenario is subject to various risks, in particular those stemming from possible turbulences in euro area sovereign debt markets.