Recently, the euro area has seen some encouraging data on retail sales, industrial production, and inflation, auguring well for some sustained improvement in aggregate demand within the euro area. Nonetheless, there remain risks and uncertainties surrounding foreign growth that could prolong or intensify foreign headwinds going forward.
Most immediately, negotiations between Greece and its creditors are challenging, and the risk of further deterioration cannot be ruled out. While the euro area has broadened its policy toolkit and most member states have made significant strides in building resilience in the past couple of years, the recovery is still fragile in several member states, and vulnerabilities to financial stresses remain.