European Economy. Quarterly report on the euro area 2003. No. I

Abstract

Economic growth in the euro area has turnedout to be significantly weaker than anticipated.Recent indicators suggest that activity, whichbegan to decelerate in the fourth quarter oflast year, will remain sluggish during the firsthalf of 2003. Growth may start to recoverduring the second half of 2003, but isexpected to return to potential in 2004 only.This disappointing performance is certainlylinked to the geopolitical tensions that havebuilt up over recent months and have sappedbusiness and consumer confidence, furtherdepressed equity prices and pushed up oilprices. In this uncertain environment,households and enterprises prefer to delayspending and thereby contribute to weakdomestic demand in the euro area. Theeconomic impact of a possible conflict in Iraqis analysed in some detail in this report