According to the latest euro zone economic outlook provided by Istat (Italy), INSEE (France) and IFO (Germany), in the current year gross domestic product (GDP) in the euro zone is expected to decline in Q2 (-0.2 percent) and Q3 (-0.1 percent) and to recover slightly in Q4 (+0.1 percent), on quarter-on-quarter basis.
Global demand is projected to improve moderately and net exports are expected to be the main driving force of the mild recovery forecast for Q4. However, unfavorable labor market conditions and impacts of fiscal consolidation will continue to dampen household disposable income. Sluggish consumer confidence is expected to lead to a decrease in private consumption in Q2 and Q3 (-0.2 percent and -0.1 percent quarter on quarter, respectively) and stagnation in Q4.
Credit supply is projected to remain limited as bank lending is affected by the need for banks to raise capital and also due to the subdued economic outlook. Therefore, investment is expected to fall in 2012 (-0.7 percent in Q2, -0.5 percent in Q3, and -0.3 percent in Q4, quarter on quarter).
The risk outlook is balanced as weaker global demand may add to financial market pressures, though market confidence could be supported by the evolution of the European framework to manage sovereign and financial risks.