Eurozone Economy Gaining Momentum
Business Cycle Tableaus by ZEW and Börsen-ZeitungEconomic Experts Predict Significantly Better Outlook for the Eurozone Compared to Germany
Business cycle experts predict that the economy of the eurozone will continue to recover. The forecast for Germany remains unchanged: there won’t be any growth in the real gross domestic product (GDP) this year, but a deep recession is unlikely. Inflation development is showing a noticeable downward trend in both Germany and the eurozone. However, interest rates are not expected to decrease for the time being. These are the results of the business cycle tableaus by ZEW Mannheim and the German daily newspaper, Börsen-Zeitung.
Germany’s economy has slipped into a recession, experiencing a 0.3 per cent decline in real GDP in the first quarter of 2023. From October 2022 to March 2023, the real GDP dropped by around 0.7 per cent. The forecast of zero growth for the whole of 2023 remains unchanged from last month. While the recession may persist for a longer period, its impact does not appear to be very severe at this stage.
Eurozone economy shows greater resilience
In contrast, the eurozone economy demonstrates greater resilience. Real economic output grew by 0.2 per cent from October 2022 to March 2023, and a growth rate of 0.7 per cent is predicted for this year. If experts’ predictions are accurate, the eurozone economy is expected to outperform Germany by 0.7 percentage points in 2023. Growth rates are anticipated to converge in 2024, with both economies forecasted to grow by 1.3 per cent.
German consumer price index declines
Regarding consumer price inflation, there has been a downward trend at elevated levels. In May, Germany’s inflation rate was 6.1 per cent, down from 7.2 per cent the previous month. Notably, the consumer price index decreased by 0.1 per cent in May compared to the previous month, indicating a noticeable slowdown in inflation dynamics in Germany. However, the forecast for the entire year remains unchanged at a (high) rate of 6.0 per cent.
Eurozone: Inflation dynamics slow down significantly
In May, the inflation rate for the eurozone also stood at 6.1 per cent, down from 7.0 per cent in April. The index value remained stable compared to the previous month, indicating a notable decrease in inflation dynamics within the eurozone as well. The inflation forecast for 2023 remains unchanged at 5.7 per cent. However, experts predict that the European Central Bank (ECB) will still fall short of its inflation target in 2024, with a projected rate of 2.6 per cent. Nevertheless, this suggests a closer alignment with the ECB’s inflation goal compared to the current year.
No interest rate cut in sight for now
The anticipated decline in the inflation rate does not prompt the experts to revise their interest rate forecasts downwards. Instead they expect 3-month interest rates to remain constant at 3.6 per cent both this year and the next, without any further increases.
Business Cycle Tableaus by ZEW and Börsen-Zeitung
In cooperation with Börsen-Zeitung, ZEW has been publishing monthly business cycle tableaus for Germany and the eurozone with economic key figures and forecasts since 2013. Numerous banks and institutes publish reports on the current and prospective economic situation at different intervals. The information relevant for the tableau is filtered out of these publications to compute a median, minimum and maximum of the available forecasts for the current and subsequent year.
The monthly tableaus show current GDP forecasts, its main components, consumer prices, industrial production, unemployment rate, short- and long-term interest rates, and interest rate spreads. The focus of the tableaus lies on national business cycle reports, which are complemented with forecasts from international banks and institutes. The tableau for the eurozone is enhanced by data from European banks and institutes.
