Upturn in Euro Area Continues but Risks Grow
The upturn in the euro area will continue this year, albeit at a slower pace than in 2017. The risks to the economy have grown, according to the three institutes ifo (Munich), KOF (Zurich) and Istat (Rome).
They expect gross domestic product to grow by 0.4 percent in the second and third quarters, with a slight uptick to 0.5 percent in the last quarter. This will result in an annual growth rate of 2.1 percent for 2018. The main drivers of growth are investment in equipment and construction, which will increase by 0.5 percent respectively in the second and third quarters against a background of lower interest rates; and by 0.6 percent in the fourth quarter. Inflation will rise from 1.7 percent in the second quarter to 2.0 percent in the third quarter thanks to higher energy prices, before dipping back down to 1.7 percent at the end of the year. This will lead to an annual inflation rate of 1.7 percent for 2018.
The economic outlook is currently dominated by downside risks. Political tensions in the euro area and the rise of protectionism may undermine the upwards trend in the future. This forecast is based on the assumption that the Brent oil price remains stable at 75 US dollars per barrel of North Sea oil and a forex rate of 1.17 US dollars per euro.
Eurozone Economic Outlook
This quarterly publication is prepared jointly by the German ifo Institute, the KOF Swiss Economic Institute, and the Italian Istat Institute. The forecast results are based on consensus estimates building on common macroeconomic forecast methods by the three institutes. Details and graphs can be found in the right column.
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