Eurozone Economic Outlook: Mild slowdown under way but growth should recover from Q2 2007 slump; Inflation set to increase

The Eurozone’s international environment became less supportive during the summer; the US real estate crisis has been deepening, and financial markets have suffered from a confidence crisis whose impact remains hard to assess, according to the latest Eurozone Economic Outlook, which is produced by three European economic institutes.

The three institutes are Germany's Ifo Institute; France's INSÉÉ - Institut National de la Statistique et des Études Économiques and Italy's ISAE - Institute for Studies and Economic Analyses.

Separately, European Central Bank President Jean-Claude Trichet said today in Moscow that growth in the Eurozone and throughout the world as "robust."

He said that the Bank's approach had not changed since it maintained its interest rates at current levels last week in Vienna.

"It (the approach) calls for growth to continue to be robust in the euro area and hover around its potential," he said.

The institutes say that GDP growth should, recover from its Q2 weakness, posting 0.6% in Q3 2007 and 0.5% in Q4 2007 and Q1 2008. Private consumption should continue to benefit from the past improvement in the labour market: it should finally increase at the same pace as GDP, but the VAT-related dip in Q1 will probably not be fully offset.

The institutes say that investment, by contrast, is expected to decelerate slightly at the forecast horizon, apart from a one-time acceleration in late 2007. Under the technical assumption that the oil price will fluctuate between $75 and $80 per barrel and that the euro/dollar exchange rate will stabilize around $1.40/€, inflation is expected to jump to 2.3% in Q4 2007 before easing slightly to 2.2% at the start of 2008.