The economic recovery in Europe has reached a critical juncture. The general lack of the imbalances which look set to constrain growth in the US and UK over the next year or two suggests that the region as a whole should fare relatively well by comparison. But with the export-driven upturn in the industrial sector quickly losing steam, much hangs on the outlook for domestic demand and, in particular, household spending. With unemployment at low levels, saving high and consumer confidence reasonably buoyant, the conditions would appear to be in place for at least some pick-up in spending. But there is little evidence yet that households are loosening their belts.
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