Today sees the launch of the EUROFRAME Group’s latest report giving GDP and inflation projections for the euro area to 2011. The report also contains projections of key economic variables for the major EU countries and the US. It analyses the effects on the euro area of the expansionary fiscal policies pursued in the US and in Asia. Among the findings contained in the report are the following:

• On the basis of the latest available data EUROFRAME forecast a tentative recovery in the euro area with GDP increasing by +1.0% in 2010 and +2.0% in 2011. This reflects a general upward revision in the assessment of economic prospects.


• This report anticipates that the fiscal stance will be close to neutral in 2010 in the euro area as a whole but will be significantly tightened in 2011, slowing the pace of the recovery. This tightening will reflect the major deterioration in the overall public sector deficit of the euro area which has resulted from the current crisis.


• Compared to previous periods of economic recovery there are several reasons for this relatively modest upturn, including the unwinding of fiscal and monetary stimulus packages, limited domestic demand growth in key trading partner countries, a strong euro exchange rate and continued adjustment of household balance sheets.


• In some major euro area economies subsidy schemes have significantly moderated the rise in unemployment. However, unemployment in the euro area as a whole is forecast to continue rising well into 2010 and to stay at a high level afterwards.


• Given the moderate outlook for inflation, the ECB is expected to keep the main refinancing rate at 1% for the remainder of this year, but to raise it slowly in the course of 2010 and 2011 in line with the forecast recovery. We anticipate the ECB will raise the main refinancing rate to above 2% by the end of 2011.