Economic Outlook

Euro Area: Improved Outlook in Spite of Uncertainties

Authors

  • Jens Boysen-Hogrefe
  • Salomon Fiedler
  • Dominik Groll
  • Stefan Kooths
  • Ulrich Stolzenburg
Publication Date

The economic recovery in the euro area remains moderate. While several sentiment indicators have improved considerably over the past few months, and therefore suggest that the recovery might gain some momentum, this has not yet been reflected in hard data, in particular not in the quarterly GDP growth rate in the fourth quarter of 2016. So far, there is a lack of striking evidence for a sustained acceleration of the recently recorded moderate pace of economic recovery. Meanwhile, political uncertainty will remain elevated over the forecast horizon due to upcoming elections in four out of five of the biggest member states, negotiations with the United Kingdom on terms and conditions for leaving the EU, and possible changes in trade policies triggered by the new US government. Nevertheless, the euro area economy is set to continue its recovery – unemployment continues to decline, numerous early activity indicators point upwards, fiscal policy is expected to be mildly expansionary over the forecast horizon, and the recovery is continuously supported by low interest rates and the low external value of the euro.

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Key Words

  • Euro area
  • European Monetary Union
  • leading indicators
  • Quantitative Easing
  • Target2