The Euro area's recession came to an end. In the second quarter of 2013 GDP increased by 1.1 percent. For the next months we expect a gradual improvement of economic conditions. Our forecast is based on a continued upturn of business and consumer confidence indicators as well as the reduction of financial market stress during the first half of 2013.
However, the speed of economic recovery will remain modest over the forecast horizon, because internal factors like structural adjustments in the crisis countries drag on growth. In the light of the economic upturn in foreign markets, we predict external demand to be the main driver of GDP growth during the next months. In 2014, we expect growth to be based more and more on domestic factors.
Overall, we forecast Euro Area GDP to decline by 0.4 percent in 2013 followed by an increase of 1.1 percent 2014. Inflationary pressures are forecast to decline further during the second half of 2013, because of low capacity utilization and only slightly increasing wages. Unemployment is projected to reach 12.2 percent in 2013 as well as in 2014.
