European Economy. Quarterly report on the euro area 2004.

Abstract

Since I presented the Commission’s autumn economic forecasts about two months ago, the economic context has evolved considerably. Oil prices reached all-time highs in October before easing again significantly, while the euro has continued to appreciate against the dollar. Disappointing third-quarter growth in France and Germany, which account for half of the euro-area economy, has attracted considerable attention. In addition, business confidence has recently shown some signs of softening. Those seeking reassurance that the upturn in the euro area is now firmly established will be disappointed by some of the most recent developments. Nevertheless, while the easing of growth momentum in the second half of 2004 suggests that downside risks have not abated, the autumn economic forecasts’ basic scenario of growth in the euro area of about 2% this year and next still stands, since it already largely took account of most of the negative forces that have recently been at play. Moreover, some developments were compensated by others. For example, although the euro has appreciated above the technical assumptions on which our growth projections were based, oil prices are now actually significantly below the level assumed for 2005