Weak domestic demand undermines growthEuro-zone economic outlook - 2nd Quarter 2010
In the Euro-zone, real GDP was stable in Q4, after accelerating in Q3. Domestic demand barely grew, with consumption stagnating and investment contracting by 1.3%. Only net exports contributed positively to growth. Accordingly, the perspectives for the Euro Area remain modest. Real GDP is forecasted to rise by 0.2% in Q1 and by 0.3% and 0.2% in Q2 and Q3 respectively. Fading fiscal stimuli, still restrictive credit conditions, and labour market slack will hamper growth over the forecast horizon. After picking up to 2.2% in Q1 driven by external demand, IPI growth is expected to soften in Q2 and Q3 (0.8% in both quarters). Private consumption is likely to stagnate in Q1 and only slightly increase in Q2 and Q3. Investment is projected to diminish by 0.5% in Q1, due to bad weather conditions, and to rise by 0.3% in Q2 and 0.2% in Q3. Under the assumption that in the coming two quarters oil prices will stabilize around the Q1 level (77 dollar/barrel) and that the dollar/euro exchange rate will slightly depreciate from 1.39 in Q1 to 1.37 in Q3, external price pressures are likely to cause a moderate acceleration of inflation (1.6% at Q2-end).