ifo: Euro Area - Economic Climate Indicator Rises Marginally

The Ifo indicator for the economic climate in the euro area rose once again marginally in the fourth quarter, and is now only slightly below its long-term average. The assessments of the current economic situation were considerably more favourable than in the third quarter of 2010. The expectations for the next six months, however, were once again weaker although they remain positive on the whole. The survey results indicate that the economic recovery in the euro area will continue in the coming six months, albeit at a slower pace than before.

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The present economic situation continues to be appraised very differently in the countries of the euro area. The current economic situation is assessed as particularly favourable in Germany, Austria and Luxembourg; it is appraised as at least satisfactory in Belgium, Slovakia and Finland. Much more unfavourable assessments of the current situation were made in France and Italy. The current economic situation in Greece, Ireland, Spain and Portugal remains particularly poor. The expectations for the coming six months are positive in nearly all countries of the euro area, except for Portugal, even though they are not quite as optimistic as at midyear.

Inflation expectations for 2010 remain unchanged at 1.6% and thus remain somewhat below the target level of the European Central Bank.

Only a few WES experts anticipate an increase in short- as well as long-term interest rates in the coming six months.

Although in the opinion of the economic experts, the US dollar is clearly undervalued vis-à-vis the euro, in the coming six months they expect the American reserve currency to continue to lose more in value over the euro.

In the wake of the economic recovery, the medium-term economic prospects have again brightened somewhat. For the next three to five years, the WES experts anticipate an average annual growth rate of 1.8%, compared to the 1.4% growth rate expected 12 months ago.

More information: www.ifo.de

ifo Institut für Wirtschaftsforschung e.V., München

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