Thursday, Dec 8, 2022
International Finance
Economy

Low interest, better credit conditions driving Euro area

Could register an annual growth rate of 2.3 percent in 2017

The euro area’s economy continues to grow strongly. Growth of 0.6 percent is expected in the third and fourth quarters of 2017 respectively, following on from 0.6 percent growth in the second quarter. Growth is expected to slow down marginally to 0.5 percent only in the first quarter of 2018, according to the three institutes ifo (Munich), KOF (Zurich) and ISTAT (Rome).

These forecasts point to an annual growth rate of 2.3 percent in 2017. The main driver behind recent developments is investments, which are benefitting from low interest rates and better credit conditions.

Household consumption, which is rising by 0.4 percent per quarter, is also a driver thanks to higher disposable income levels and a favourable labour market.
Positive developments in the world economy will boost external demand, even if the latter may be slightly hampered by the loss of competitiveness accompanying the euro’s appreciation.

Consumer prices rose in the second quarter by 1.5 percent compared to the same period of the previous year. This figure will edge downwards to 1.4 percent in the third and fourth quarters and will drop further to 1.1 percent in the first quarter 2018.

This is primarily due to a base effect in energy prices, which will be significantly below the level seen during the same period this year. That applies under the assumption that the price of Brent oil remains at 51,70 dollars per barrel and the exchange rate will be at 1.18 dollars per euro.

The risks of the forecast include a deterioration in the USA’s growth outlook, which could arise from further disappointments related to the Trump government’s future economic policy. Tensions between the USA and North Korea are also fueling uncertainty.

Other risks for the euro area include the appreciation of its currency, as well as the high level of non-performing loans on the balance sheets of banks in some EU member states.

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