Euro Area Economic Forecast

Economic Snapshot for the Euro Area

September 29, 2021

Euro area economy seen rebounding this year

The economy bounced back robustly in the second quarter, as the lifting of restrictions in the region amid expansionary fiscal and monetary policies bolstered household spending and investment activity. Available indicators suggest the recovery has carried over into the third quarter, albeit at a softer pace. A healthy rebound in industrial production in July, upbeat business sentiment in July−August and strong manufacturing PMI readings throughout the quarter hint at expanding private sector activity. Moreover, the services PMI has continued to signal strong expansions in the quarter, which, coupled with a further improvement in labor market conditions in July and stronger tourism activity, points to an ongoing recovery in the tertiary sector. However, weakening consumer confidence and mounting inflationary pressures in July−August could have weighed on household spending somewhat.

Inflation to moderate in 2022

Harmonized inflation came in at 3.0% in August, above July’s 2.2% and marking the highest print since November 2011, boosted by soaring energy prices. Inflation should moderate in 2022 following this year’s spike, as the low base effect fades. That said, the ECB’s ultra-loose stance, rising CO2 and transport prices, and global supply shortages pose upside risks.


 

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