The co-authored paper was published to mark the founding conference of the EconPol research network in Brussels. Since the launch of the euro, the paper reveals that economic developments have been closely aligned in Germany, Austria, Belgium, The Netherlands, Luxemburg, France and Italy. These countries are followed by Slovenia, Spain, Estonia and Portugal. Economic developments show greater divergence in Ireland, Latvia and Lithuania. Greece was the only country with a completely different economic cycle to that of the other euro area countries between 1990 and 2014.

EconPol Europe’s members are the ifo Institute, the Centre for European Policy Studies (ZEW) in Mannheim, the Institute for Advanced Studies (IHS) in Vienna , the Centre for European Policy Studies (CEPS) in Brussels, the Centre d’Études Prospectives et d’Informations Internationales (CEPII) in Paris, the Toulouse School of Economics, the Oxford University Centre for Business Taxation, the Department for Economics and Management at the University of Trento and the VATT Institute for Economic Research in Helsinki.

EconPol Europe is financed by the German Federal Ministry of Finance.

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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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