Economic Forecasts Autumn 2004

Following the turnaround in the second half of 2003, economic activity in the euro area and the EU gathered speed this year. Supported by the continued buoyancy of global growth and trade, the growth rates are projected to reach 2.1% in the euro area and 2.5% in the EU this year. This is followed by a deceleration of the order of 0.1 to 0.2 percentage points in both regions in 2005, as the sharp rise in oil prices takes its toll, and a subsequent rebound in 2006 as the latter effect tapers off. Apart from the external impulse from global demand, the main factors behind the outlook include accommodative macroeconomic policies, low inflation, supportive financial conditions, widening profit margins, and progress in structural reforms. The consolidation of the recovery over the forecast horizon is underpinned by an acceleration of investment expenditure and a more gradual pick-up in private consumption. As the lagged effects of the protracted downturn dissipate, the performance of the labour market is expected to respond to the momentum of economic activity. Employment growth in the euro area, at 0.5% in 2004, is expected to accelerate to 0.9% in 2005 and 2006. For the EU as a whole, the pick-up profile is similar, although the rise in employment is projected to be slightly lower.

European Commission: Press Release: IP/04/1297 http://ec.europa.eu/comm/economy_finance/publications/european_economy/2004/ip041297en.pdf

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