Euro-zone GDP expected to grow 2.6% in 2007

Despite the US real estate crisis and declining confidence in financial markets, eurozone GDP is expected to register growth of 2.6% in 2007 thanks to an increase in private consumption, according to forecasts from the Ifo Institute for Economic Research.

The latest Eurozone economic outlook, published on 11 October 2007, forecasts 2.6% growth in the eurozone economy in 2007 –  a “mild slowdown” compared with the 2.9% growth registered in 2006. 

Even though the “eurozone’s international environment became less supportive during the summer”, GDP growth should, according to the outlook, recover from its Q2 weakness (0.3% growth compared to 0.7% in Q1) and increase to 0.6% in Q3 and 0.5% in the final quarter of 2007.

The growth is expected to be sparked by an increase in private consumption sparked by positive developments, including “strong job creation and a steady decrease in the unemployment rate” in the eurozone labour market. 

Household saving rations are expected to slightly slow down when compared to the sharp increase in early 2007, whereas inflation is forecasted to increase by some 0.4%, providing that oil prices continue to fluctuate and the euro/dollar exchange rate stabilises at around $1.40/€.

The quarterly outlook, a result of collaboration between the Ifo Institute in Munich, INSEE in Paris and ISAE in Rome, produces estimations for the previous quarter and short-term forecasts for current and the following quarters for real GDP, consumption, industrial production and inflation. The next forecast is due 10 January 2008. 

The latest OECD 
Economic Outlook
, published in May 2007, predicted 2.7% growth in the 13-nation eurozone in 2007.

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