Upswing in the euro area continues

Frankfurt/Main (ots) -

- KfW Research confirms growth forecast of 2.4% for 2018
- Growth expected to slow to 2.1% in 2019
- Political risks to the euro area business cycle have waned,
spotlight is now on financial markets

With a growth rate of 2.3%, 2017 was the most successful year of
the euro area in a decade. The upswing will continue at an unabated
pace in 2018 as well. KfW Research confirms its 2.4% growth forecast
for the current year. The current business cycle might have passed
its peak in 2019, however, and the growth momentum may slow
moderately. KfW Research expects real gross domestic product to grow
by 2.1% in 2019.

Consumption remains the main driver of the upswing, fuelled by the
steady reduction in unemployment in the euro area. Investments are
gaining in importance as a second pillar, not least because full
capacity utilisation is now approaching in the wake of what has been
a long-standing economic recovery and companies must invest to meet
demand. Unlike in the past four years, external trade has recently
contributed to growth again as well. International orders from
outside the euro area in particular increased significantly in the
second half-year of 2017. This shows that international business so
far has not been impaired by the appreciation of the euro.

"The current economic situation in the euro area remains good,
with hard cyclical indicators signalling strong growth in 2018 as
well", said Dr Jörg Zeuner, Chief Economist of KfW Group. "Recent
confidence indexes, however, have shown first clouds appearing on the
economic horizon. Several factors point to slower momentum in 2019.
The euro area will mark six years of continuous recovery early next
year. The mere duration of this recovery phase makes it plausible to
assume that growth has now reached the peak of the current cycle.
This is all the more so as the economy is now growing faster than its
potential rate and the stimulus from the expansionary monetary policy
will decrease. The financing environment is becoming less favourable
- even if the decline is starting from a high level. Nevertheless,
the interest rate reversal has now been initiated and the distortions
in the stock markets at the beginning of February confirm the
heightened risk aversion among market stakeholders. Moreover,
although the global economy is still growing strongly, growth
momentum is not accelerating further outside the euro area either",
said Zeuner.

The risk of lower economic development exists particularly if
interest rates rise faster than previously expected, leading to
heightened volatility in the financial markets. "A sudden tightening
of borrowing conditions might hamper investment activity and shake
this increasingly important pillar of the recovery", said Zeuner.
Political risks also remain but have partly shifted away to countries
outside the monetary union. Besides the scenario of a hard Brexit
that still cannot be ruled out, the main focus here is on a US trade
policy that may be harmful to growth and set in motion a
protectionist spiral. In addition, should the euro continue to
appreciate strongly it will be increasingly difficult for the economy
to defy the associated negative consequences for exports and maintain
a constant growth rate.

The current KfW Business Cycle Compass Eurozone is available at:
http://ots.de/QrL3Aw

You can find all current publications by KfW Research on the
economic situation in Germany and the euro area on our topic page:
http://ots.de/jpks8r (only in German)

Pressekontakt:
KfW, Palmengartenstr. 5 - 9, 60325 Frankfurt
Kommunikation (KOM), Christine Volk,
Tel. +49 (0)69 7431 3867, Fax: +49 (0)69 7431 3266,
E-Mail: Christine.Volk@kfw.de, Internet: www.kfw.de

Original-Content von: KfW, übermittelt durch news aktuell