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The European Forecasting Network publishes its Autumn 2009 Report online :”Economic Outlook for the Euro Area in 2009 and 2010″

The European Forecasting Network (EFN) is a research group of European institutions [1], founded in 2001 under the auspices of the European Commission, and currently partly financially supported by the Robert Schuman Centre for Advanced Studies (RSCAS) at the European University Institute (EUI, based in Florence, Italy), which is also coordinating the report under the responsibility of Prof. Massimiliano Marcellino.

The objective of the EFN is to provide updated forecasts and analyses of the macroeconomic situation for the Euro area. It publishes four quarterly reports.

From 24 September, the Autumn 2009 Report will be freely downloadable from the EFN website: http://efn.eui.eu

Highlights

The worldwide recovery will put an end to the recession in the euro area in the second half of 2009, but chances for a robust upswing for the year 2010 are slim. We expect GDP to fall around 4.0% in 2009, but a positive growth rate of 0.8% in 2010. However, as unemployment will continue to rise and fiscal policy in member countries with high budget deficits will become restrictive, private consumption is expected to decrease by -0.5% in 2010. Public consumption, public investment and exports will support aggregate demand.

Industrial production has bottomed out in the second quarter of 2009. Nevertheless, industrial recovery will take time and average growth rates are expected to be just slightly positive in 2010 (1.1%). It is worth mentioning that this figure has improved significantly since our last report, as world trade has started to recover and some firms are restocking their inventories or reducing them at a slower rate than in the first half of the year. However, private investment will be declining well into next year, as capacity utilization is extremely low and the real costs of financing are not as attractive as interest rate figures appear to suggest.

The HICP evolution is expected to remain stable during 2009 and most of 2010. In fact, inflation expectations confirm that price stability is one of the virtues of the euro area and that inflation fears should not limit, for the moment, fiscal and monetary counter-cyclical policies.

The main risk for the world economy is that policy fails to adapt to a new post-crisis environment. One challenge is the correct timing for reducing the extremely expansive policy stance and public support for the financial sector; another is regulatory reform of the financial sector that has the potential to stabilize or destabilize confidence of households and firms.

For further information, please see the EFN website: http://efn.eui.eu
or contact the EUI secretary or Professor Massimiliano Marcellino at +39 055 4685 956 or 928.

Comments and suggestions are welcome.

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[1] The participating institutions are:
- RSCAS, European University Institute (EUI), Italy
- Centre d’Etudes Prospectives et d’Informations Internationales (CEPII), France
- The Halle Institute for Economic Research (IWH), Germany
- The Department of Economics, European University Institute (EUI), Italy
- Anàlisi Quantitativa Regional (AQR), Universitat de Barcelona
- Instituto Flores de Lemus (IFL), Universitat Carlos III, Madrid, Spain
- Department of Applied Economics (DAE), University of Cambridge, UK

FROM:EUI communications & public relations

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