Euro area: Anatomy of a slowdown

We use a dynamic model of the euro area to better understand the slowdown that is underway s ince the beginning of 2018. We find that a multitude of shocks have adversely impacted growth, with no single factor being able to explain the weakness by itself . Our model also shows that o ne characteristic of past recessions has been a fast acceleration of the negative growth impact from specific shocks. During the 201 1 /12 recession , for example, we could observe a fast increase in the drag on growth from financial variables, while the contribution from external variables remained positive. There is no indication for any such negative feedback loop for now. While this is clearly a positive with respect to the outlook for this year, our analysis also shows that growth remains quite fragile at this point.