The worldwide upswing has lost momentum, but it will overcome the present slowdown. Monetary policy is overall still accommodative, and growth dynamics continue to be high in emerging market countries. For the euro area, we expect GDP to grow by around 1.9% in 2011 and 1.7% in 2012, not enough to bring the unemployment rate back significantly below 10%. In fact, in a large core region of the euro area the upswing is well under way; this region includes, apart from Germany and some smaller economies, France, Belgium and the Netherlands. However, the crisis of confidence in the ability of EU institutions to master the fiscal crises is a major threat to the continuation of the upswing.

Our baseline scenario for the world economy in 2011 and 2012 is a continuation of the upswing, because growth dynamics continue to be high in emerging economies, monetary policy will in general continue to be expansive, and the factors that dampen the recovery in many advanced economies are slowly declining. There are two main downward risks for this prospect: first, low interest rates and high growth might drive commodity prices to disruptive levels. Second, waning confidence in financial markets might enhance volatility and enforce further extensivemeasures of consolidation in advanced economies.

In most advanced economies, strained public finances compel central banks to keep their expansive course, while interest rates in most emerging markets continue to be relatively low, if compared to their high potential growth rates. Thus, expansive monetary policies throughout the world, while giving cause for concern regarding long run macroeconomic stability, brighten the growth prospects for 2011. Developments in the group of countries that are neither booming nor in stagnation will be pivotal for the euro area economy in 2011. Economic sentiment indicators appear to suggest that important core countries are benefiting more and more from the upswing in Germany. In addition, the crisis of confidence in 2010 has weakened the common currency and thus improved the competitiveness of firms producing in the euro area.

The euro area economy benefits from dynamic growth of exports to the emerging markets. Exports to Asia in particular have exceeded their peak level of spring 2008 as early as at the beginning of this year. Firms reacted by restocking and investing in equipment. The growth hike of the second quarter, however, will not be repeated, as it was favored by special factors. We expect euro area GDP to grow by around 1.6% in 2010 and 2011. The upswing of world trade calms down in the second half of this year and the effects of fiscal consolidation in Europe become increasingly felt.

The world economy is recovering, largely driven by upswings in most emerging market economies. Although growth in these regions is apparently calming down at present, the euro area will still be benefiting from the momentum of a healthily expanding world trade for much of the remaining year. Rising exports will be the main driver of the recovery in the euro area during the first half of 2010. We expect euro area GDP to grow by around 1.0% in 2010 and 1.6% in 2011, respectively. Due to this increase in external demand, the growth rate of the industrial production index has also gained momentum: during 2010 the industrial production index is expected to grow around 7%, though only at about 3% in 2011.