Euro area: A surer footing

After several false starts, the economic recovery has taken hold. Activity in the first half of 2006 grew at the fastest pace for some years. Exports and investment have been the main drivers, but there are signs that households have started to boost spending as well. Consumption should underpin the recovery, with business and residential investment playing less of a role than they have done recently. Overall, GDP is projected to grow in the 2 to 2.5% range through 2007 and 2008.
With the recovery on a surer footing, monetary stimulus should be removed. If the recovery maintains strong momentum, there may be a need to raise interest rates further in 2008 as well. The improvement in the fiscal position is welcome, especially in the countries that had high deficits, but further steps are needed to move towards a sustainable fiscal position. Additional reforms to enhance the single market would improve the euro area’s economic performance and its resilience to shocks.
Population (000s), 2005 311 357
Area (000 sq km) 2 503
Currency Euro
GDP (Billion USD), 2005 9602.2
Life expectancy at birth (Women, Men), 2004 81.9, 76.0
Total labour force (000s), 2005 146 265
Government type Federal Republic
Indicators % change unless otherwise indicated
2006 2007 2008
GDP growth 2.6 2.2 2.3
Household savings ratio 10.1 10.0 9.9
Consumer price index 1.4 1.9 1.8
Short-term interest rate (%) 3.1 3.8 4.0
Unemployment rate (%) 7.9 7.4 7.1
General government financial balance (% GDP) -2.1 -1.5 -1.4
Current account balance
(% GDP)
-0.3 -0.1 -0.1
Source: OECD©OECD Observer No. 258/259, December 2006


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