European Economy. Quarterly report on the euro area 2004.

Abstract

It is with great pleasure that I continue the tradition established by my predecessor Pedro Solbes of drawing together the main lines of the analysis presented in the regular Quarterly Reports on the Euro Area. It has now been about a year since the euro-area economy began to turn around and, after a hesitant start, the recovery is now proceeding on increasingly firm ground. After running at about 1.5% during the second half of 2003, GDP growth gathered momentum in the first quarter of this year with an annualised rate of 2.3%. This was above both consensus expectations and the Commission Spring 2004 Forecasts. After sending somewhat mixed signals in the first months of the year, confidence and leading indicators have now taken a more upbeat tone on the back of strengthening business sentiment. This shows that some of the uncertainties that had hitherto weighed on confidence have been lifted. Overall, recent data suggest that our spring forecast of 1.7% GDP growth for 2004 – considered optimistic by some commentators at the time – now appears to have been somewhat on the low side. However, some uncertainty still surrounds the outlook for next year. The recovery is not yet self-sustaining and, in the context of a maturing global trade cycle, robust domestic demand will become increasingly necessary. Recent developments on this front have been somewhat mixed. The upswing in private consumpti