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Euro-area economy grows strongly

Summary:
The economy in the euro area grows strongly. The ifo Institute (Munich), ISTAT (Rome) and KOF (Zurich) expect to see respective growth rates of 0.6 percent and 0.5 percent in the first and second quarters of 2018. After 0.6 percent growth in the third quarter of 2017, they also expect this rate to remain unchanged in the fourth quarter of 2017. The main driver of growth is private investment. Private consumption is expanding robustly, but at a slower pace than in the first half of 2017. Inflation will fall from 1.4 percent in the last quarter of 2017 to 1.2 percent in the first quarter of 2018. This is due to base effects resulting from higher energy and food prices last winter. The institutes expect inflation to return to 1.4 percent in the

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The economy in the euro area grows strongly. The ifo Institute (Munich), ISTAT (Rome) and KOF (Zurich) expect to see respective growth rates of 0.6 percent and 0.5 percent in the first and second quarters of 2018. After 0.6 percent growth in the third quarter of 2017, they also expect this rate to remain unchanged in the fourth quarter of 2017. The main driver of growth is private investment. Private consumption is expanding robustly, but at a slower pace than in the first half of 2017.

Inflation will fall from 1.4 percent in the last quarter of 2017 to 1.2 percent in the first quarter of 2018. This is due to base effects resulting from higher energy and food prices last winter. The institutes expect inflation to return to 1.4 percent in the second quarter of 2018. The forecast is based on a Brent price of 67 US dollars per barrel and an exchange rate of USD 1.20 against the euro.

The fragile banking sectors of many countries, saddled with high levels of non-performing loans, remain a risk, but have recently showed signs of stabilising. Very strong sentiment on the part of companies, consumers and the financial markets may have a positive impact.

Clemens Fuest
Clemens Fuest took over from Hans Werner Sinn as chairman of the IFO Institute in April 2016. He is professor at the Faculty of Economics of the University of Munich.

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