Brussels, 02/01/2003 (Agence Europe) - According to the Fourth Quarterly Report on the Euro Area published by the European Commission, recent data show a gradual re-balancing of the sources of growth in the Eurozone from trade to domestic demand. Indicators released last month send mixed signals but remain in line with the projection of GDP growth averaging 1.8% in 2003 presented in the Commission's Autumn 2002 Forecasts.
The latest national account data show an acceleration of growth in private consumption in the third quarter of 2002. Private consumption is turning into the largest contributor to growth. However, consumer sentiment deteriorated in October and November partly reflecting increasing concerns about unemployment. Business sentiment in the manufacturing sector improved slightly in the past two months but remains low, suggesting that the required adjustment to the equity price fall might not have run its course. Overall, growth is expected to return to potential during the second half of next year.
The fourth Quarterly Report also takes an in-depth look at the phenomenon of inflation differences in the Eurozone. Inflation differences can reflect the effective functioning of a monetary union with changes in relative prices between countries being a key adjustment mechanism. Alternatively, they can be a symptom of economic imbalances. The analysis shows that inflation differences are not a major source of concern in the Eurozone as they appear to be mainly attributable to the asymmetric impact of price shocks, to productivity differentials and to asymmetries in national cyclical positions. However, empirical evidence also suggests that cyclical imbalances can have lasting effects on inflation differences because of price and wage rigidities. The next Quarterly Report is scheduled to be released in March.