The euro zone economy may contract as much as 0.3 per cent in the fourth quarter compared to the third and will at best grow by 0.1 per cent, according to forecasts released today by the European Commission.
The EU executive said a new model to predict quarterly gross domestic product growth for the 12-nation region also forecast quarter-on-quarter GDP growth of between 0.1 per cent and 0.4 per cent in the first three months of this year.
This follows the increase of 0.1 per cent in euro zone GDP in the third quarter of 2001 reported earlier this month by Eurostat, the EU's statistical agency.
"It would imply that the trough of the recent slowdown is situated in the last quarter of 2001, but also that activity will only moderately accelerate at the beginning of this year," the Commission said.
Biannual forecasts released by the Commission in November had predicted the euro zone economy would contract 0.2 per cent in the fourth quarter of 2001 and then grow 0.3 per cent in the first quarter of this year.
The EU executive said the predictions released today would complement those forecasts and were based on a model which used indicators of real economic activity or assessments of opinion surveys and financial variables, both of the euro zone and the United States.
The indicators feeding into the model include car sales in the euro zone, private consumption in the euro zone as reflected in the opinion survey on the present business situation in the retail sector, and the construction sector in the euro zone as reflected in the construction confidence survey indicator.
It also incorporates the US Institute of Supply Management (formerly NAPM) survey index of the manufacturing industry, the relative yield spread between the euro zone and the United States, and the real effective exchange rate.