EUROFRAME - European Forecasting Network. Economic Assessment of the Euro Area: Winter 2011/2012 Report. January 2012

Author, No (2012) EUROFRAME - European Forecasting Network. Economic Assessment of the Euro Area: Winter 2011/2012 Report. January 2012. UNSPECIFIED.

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Abstract

With the unresolved debt crisis, the uncertainty surrounding the euro area economy is particularly acute this winter. This fact was nicely summarised by Olivier Blanchard (2011): ‘... [P]ost the 2008-09 crisis, the world economy is pregnant with multiple equilibria—self-fulfilling outcomes of pessimism or optimism, with major macroeconomic implications.’ Because of this uncertainty, in preparing this outlook for the euro area economy using NIESR’s NiGEM world model, we have considered three different scenarios. In the central forecast we see the EU “muddling through” the crisis, with current levels of uncertainty about debt sustainability persisting through to the middle of the year. The recapitalisation of the EU banking system will also exercise a negative effect on growth in the first half of 2012. On the basis of these assumptions there would be no growth in output in the euro area this year, with a return to limited growth of only 1.4% in 2013.

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