Economic Momentum Slows in the Euro Area – Energy Price Developments Have a Negative Impact

The U.S. economy continued to expand in the first half of 2005 despite the strong impact of a further rise in oil prices. However, according to OECD estimates, Hurricane Katrina will dampen economic growth by 0.5 percentage point to 3.1% for the whole year 2005. The Japanese economy remained on its growth path in the second quarter of 2005. The other Asian economies — especially dynamic China — also expanded further. Conversely, GDP growth in the euro area slowed down in the second quarter of 2005. Hit by energy price increases, private consumption generated a marginally negative contribution to growth, while foreign trade and investment made only small positive contributions to growth. Whereas the leading indicators had sent out positive signals since May, these signals recently reversed, so that the outlook for the second half of 2005 deteriorated. Once again, energy price developments are the main culprit; they are also the reason for the persistently high level of inflation. Growth in most of the Central European new Member States (NMS) as well as the EU candidate countries slowed in the first quarter of 2005 compared to the full year 2004. Only in Bulgaria and in the Czech Republic did GDP growth accelerate somewhat. In the second quarter of 2005, economic activity picked up in all Central European NMS save Slovakia, where it remained stable at a high level. After the upward pressure on prices experienced in 2004 — largely as a consequence of EU accession — 2005 is marked by positive base effects, which have helped slow down inflation in the NMS. The Austrian economy, which had enjoyed robust export-driven growth in 2004, lost momentum in the first quarter of 2005 but regained speed in the second quarter. The OeNB's short-term economic indicator points to 1.8% real GDP growth for the full year 2005, which corresponds to a downward revision by 0.2 percentage point compared with the forecast that the OeNB published in June. Despite elevated energy prices, inflation has been going down in 2005 so far. The unemployment rate (Eurostat definition) augmented to 5.1% in July 2005 even though employment surged.