The euro-area economy has entered a phase of stabilisation. Important policy actions have helped easing financial market conditions and have provided crucial support to the economy. The situation in financial markets has improved during the last six months and real economic activity also witnessed substantial improvement during the second quarter. However, considerable uncertainty remains about the strength and sustainability of the recovery.

The financial crisis has led to a reduction in global current-account imbalances. This issue of the Quarterly Report on the Euro Area argues that this could have a significant impact on the euro area depending on the evolution of the unwinding process and the policy measures taken in the major surplus and deficit economies.

The report also takes a looks at the interactions between wealth, indebtedness and private consumption in the euro area. It argues that balance-sheet consolidation is currently weighing on household spending but this negative effect should wear off progressively and give way to a gradual consumption recovery. A major uncertainty on the recovery comes from the negative effects of a possible increase in household credit constraints in the wake of the financial crisis.

The impact of the crisis on trade

The focus section of the QREA looks into the slump of world trade and its implications for euro-area exports. World trade fell at a rate not seen since the Great Depression and much faster than world economic activity. This sharp fall can be related to increased internationalisation of production chains, difficulties with trade finance and the strong impact of the recession on the demand for trade intensive goods. The slump had a strong impact on the euro area but the effect differed across Member States, depending on the size and structure of exports. Recent data point towards stabilisation of world trade flows but overall prospects for the euro-area export markets are rather subdued.