Economic Assessment of the Euro Area: Winter 2011/2012 Report

18/01/2012

Today (18/1/2012) sees the launch of the EUROFRAME Group’s latest report giving GDP and inflation projections for the euro area to 2013. The report also contains projections of key economic variables for the major EU countries. It analyses the economic effects on the euro area of banking recapitalisation and financial uncertainty. Among the findings contained in the report are the following:

• The unresolved debt crisis means that uncertainty regarding the outlook for the euro area economy is particularly acute this winter. Because of this uncertainty this latest report from the EUROFRAME Group considers three alternative scenarios, reflecting three possible policy responses to the crisis.
• In the central forecast the EU “muddles through” the crisis and a serious depression is avoided. On the basis of the latest available data, EUROFRAME forecast that the euro area will stagnate in 2012 and growth will increase by +1.4% in 2013. In 2012, domestic demand will be depressed by fiscal consolidation and somewhat tighter credit standards. With the effect of fiscal consolidation dying out and bank lending conditions loosening the euro area economy should reach a turning point in mid-2012 leading to a resumption of growth.
• Given the uncertainty surrounding the euro crisis the report also contains alternative scenarios. A more pessimistic scenario models a further deepening of the crisis. This scenario would result in a fall in GDP in 2012 of just over 2% and a further fall in 2013 of just over 1%.
• The other alternative scenario models the effect of ‘decisive action’ by policy makers leading to a return of confidence in the ability of euro area governments to meet forthcoming debt obligations. Under this scenario GDP would grow by 0.8% in 2012 and 1.8% in 2013.

The EUROFRAME Group comprises ten of the most respected economic forecasting and research institutes in Europe.[1]   For further information contact: Nuša Žnuderl, ESRI at 01 863 2035 Web site:  www.euroframe.org or www.esri.ie   
[1] CASE (Poland), CPB (Netherlands), DIW Berlin (Germany), ESRI (Ireland), ETLA (Finland), The Kiel Institute for the World Economy (Germany), NIESR (United Kingdom), OFCE (France), PROMETEIA (Italy) and WIFO (Austria)

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