The euro area economy is growing

The upswing in the euro area is now entering its fifth consecutive year. Hard cyclical indicators have finally caught up with business confidence, which has been very high for some time now. Now it’s all systems go. The persistently high growth rates indicate that the current business cycle is slowly nearing its peak. For the first time since the end of 2008, the output gap is likely to close completely in this quarter.

KfW Research has therefore lifted its growth forecast for 2017 from 1.8 to 2.2 %. This would make 2017 the most successful year of the euro area economy in the last decade. Growth should continue at a similar rate (2.0 %) in 2018. The strength of the euro has the potential to slow down the pace of expansion. Further appreciation might be a dampener on economic growth. Given the robust global business cycle, however, the upswing may even accelerate.

KfW Business Cycle Compass Eurozone September 2017(PDF, 119 KB, non-accessible)

The economic recovery has now taken hold in all member states of the euro area. The output gap – a measure of an economy’s cyclical situation – is more similar across the 19 euro countries than hardly ever before in the nearly 20-year history of the currency union. This business cycle symmetry not only facilitates the single monetary policy. It also creates a favourable environment for the further institutional development of the euro area. When the member states’ economies are in a similar situation, their national ideas about the future reform pathway are less far apart. So the time to continue developing the euro area is now.

The whole euro area is recovering – the whole euro area …? Yes!(PDF, 87 KB, non-accessible)