EUROFRAME - European Forecasting Network. Economic Assessment of the Euro Area: Forecasts and Policy Analysis, Autumn Report 2005. Special Policy Issue: Macroeconomic Differentials and Adjustment in the Euro Area: The Future of Corporate Taxation in the EU. October 2005

Author, No (2005) EUROFRAME - European Forecasting Network. Economic Assessment of the Euro Area: Forecasts and Policy Analysis, Autumn Report 2005. Special Policy Issue: Macroeconomic Differentials and Adjustment in the Euro Area: The Future of Corporate Taxation in the EU. October 2005. UNSPECIFIED.

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Abstract

EUROFRAME - European Forecasting Network predicts that the Euro Area economic growth will remain weak relative to other major economies, with GDP projected to rise by just 1.2 per cent in 2005, compared to growth of 2.6 per cent in the OECD area. Private sector investment and trade growth were particularly disappointing in the first half of 2005 in the Euro Area, where our projections for GDP growth have been revised downwards by roughly 0.2-0.3 percentage points per annum since the Spring Report. This revision may seem relatively modest given a rise in the oil price of roughly $20 per barrel over this period. While the oil price rise lifts inflationary pressures in the Euro Area, the negative impact on growth is largely offset by the combined effects of a fall in both real and nominal long-term interest rates and by a modest depreciation of the euro. These two developments should help stimulate investment growth and external demand, offsetting the downward pressure on consumer demand from higher prices.

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