Economic forecasts Spring 2003

The euro area and EU economy ended 2002 on a very weak note due to global uncertainties and persistent structural rigidities that reduce our capacity to react to shocks. Continued sluggishness is expected to prevail in the first half of this year. Assuming that geo-political tensions abate before the summer, the return of confidence and lower oil prices would trigger a moderate recovery in the second half of 2003. It is unlikely to be a vigorous rebound as the rise in unemployment weighs on consumption, the protracted fall in stock markets affects corporate balance sheets and oil prices continue to put pressure on inflation. Consequently, for a third consecutive year growth is likely to disappoint: the average growth rate is expected to be a meagre 1 % in 2003 in the euro area (1.3 % in the EU). A more solid average growth rate of 2.3-2.4% is projected in the euro area and EU next year, when employment creation resumes, investment picks up and the international environment is more supportive. However, given the high level of uncertainty, a further delay in the acceleration of growth cannot be excluded.