European Economy. Quarterly report on the euro area 2010.

Abstract

As the tumultuous year of 2010 draws to a close, the euro-area economy presents itself in a complex state marked by a certain ambivalence of fortunes. While great achievements have been made and considerable challenges remain, one of the most welcome developments has been the strength of the economic recovery this year. The Commission's latest Autumn Forecast, published on 29 November 2010, showed a significant upward revision to euro-area GDP growth, which is expected to reach 1¾% for 2010 as a whole. This encouraging headline figure cannot do full justice to the complex economic forces currently shaping the recovery and the balance of risks. Signs of a softening global environment and the onset of fiscal consolidation entail that activity is likely to moderate towards the end of 2010 and in 2011, but to pick up again in 2012 on the back of strengthening private demand. The recovery also appears to be broadening out. While export growth has been solid for some time, the euro-area economy is now entering the next phase, whereby the pick-up in exports starts to spur investment demand, especially for equipment. Some improvement is also apparent in national public finances as virtually all Member States' deficit is falling in 2011, although debt levels are still trending upwards.