Economic Assessment of the Euro Area: Winter 2012/2013

February 20, 2013

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Today (Wednesday 20th February) sees the launch of the EUROFRAME Group's latest report giving GDP and inflation projections for the Euro Area to 2014. The report also contains projections of key economic variables for the major EU countries. It analyses the economic effects on the Euro Area of the continuing financial uncertainty and the tight fiscal policy currently pursued. Among the findings contained in the report are the following:

  • As a result of relatively weak external demand, continuing financial uncertainty and the contractionary stance of fiscal policy, output fell in the Euro Area in 2012 (-0.5 per cent). Over the course of 2012 there was a slowdown in some key economies, which were previously contributing much of the growth. This slowdown has carryover effects into 2013.
  • Even though we anticipate a recovery in confidence in some major economies over the course of this year, the outcome for the Euro Area as a whole is still likely to be a further limited fall in GDP in 2013 of 0.3 per cent. Weak external demand will not be enough to compensate for the fall in domestic demand.
  • For 2014, a recovery in domestic demand should see a return to significant growth in GDP of around 1.3 per cent. However, this forecast must be considered in the light of the continuing vulnerability to financial shocks of a number of the Euro Area member states.
  • This vulnerability of countries in financial distress is being addressed through a continuing major fiscal adjustment. However, the fiscal adjustment underway across other members of the Area is also having a substantial negative effect on growth, particularly in the crisis countries. Without this fiscal adjustment the Euro Area would be looking to growth this year at approximately 1.5 per cent and next year at approximately 2 per cent.

John FitzGerald of the ESRI, commenting on the EUROFRAME report, said that “it shows the negative effect of Euro Area fiscal policy on growth. While there is no escaping austerity in the countries with serious financial problems, it is unnecessary for the rest of the Euro Area to also implement tough budgets. A more co-ordinated fiscal policy in the Euro Area could return Europe to growth this year, while also aiding the financially distressed countries exit from the crisis.”

Note for Editors: The EUROFRAME Group comprises ten of the most respected economic forecasting and research institutes in Europe - CASE (Poland), CPB (Netherlands), DIW Berlin (Germany), ESRI (Ireland), ETLA (Finland), The Kiel Institute for the World Economy (Germany), NIESR (United Kingdom), OFCE (France), PROMETEIA (Italy) and WIFO (Austria).