Experts from the European Forecasting Network have predicted growth of 1% GDP in the Euro area for 2010 and 1.6% in 2011. The recovery will be led by demand for exports from emerging market economies.
Momentum from external demand is set to decline during the European Winter and tightening budgets will begin to take effect. However, private consumption and investment should recover in this time and more than offset these negative effects.
The EFN says that doubts about the strength of some Euro area states and banks present the main danger to recovery because of their effects on confidence in financial markets.
The EFN Summer report 2010 says:
Banks suffer from overexposure to public debt of dubious quality, while governments face the risk of new burdens from failing banks, in particular due to their overexposure to ailing construction sectors.
Inflation is expected to remain stable around a 1.5% year on year rate during 2010 and 2011. These projections assume a mild increase in oil prices during the forecasting horizon and a relatively stable euro/dollar exchange rate.