The European Commission's autumn forecast projects weak economic
growth for the rest of this year in both the EU and the euro area. Real
GDP growth is expected to reach 1.3% in the EU and 0.8% in the euro area
for 2014 as a whole. Growth is expected to rise slowly in the course of
2015, to 1.5% and 1.1% respectively, on the back of improving foreign
and domestic demand. An acceleration of economic activity to 2.0% and
1.7% respectively in 2016 is expected to be driven by the strengthening
of the financial sector (following the comprehensive assessment by the
European Central Bank and further progress towards the Banking Union),
as well as recent structural reforms starting to bear fruit.
Jyrki Katainen, European Commission Vice-President for Jobs, Growth, Investment and Competitiveness, said: "The
economic and employment situation is not improving fast enough. The
European Commission is committed to use all available tools and
resources to deliver more jobs and growth in Europe. We will put forward
a €300 billion investment plan to kick-start and sustain economic
recovery. Accelerating investment is the linchpin of economic recovery."
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "There
is no single, simple answer to the challenges facing the European
economy. We need to act across three fronts: for credible fiscal
policies, ambitious structural reforms and much-needed investment, both
public and private. We must all assume our responsibilities, in
Brussels, in national capitals and in our regions, to generate higher
growth and deliver a real boost to employment for our citizens."
The
economic recovery that started in the second quarter of 2013 remains
fragile and the economic momentum in many Member States is still weak.
Confidence is lower than in spring, reflecting increasing geopolitical
risks and less favourable world economic prospects. Despite favourable
financial conditions, the economic recovery in 2015 will be slow. This,
reflects the gradual fading of the crisis legacy with still high
unemployment, high debt and low capacity utilisation. The European
Central Bank’s recent comprehensive assessment
has reduced uncertainties about the soundness of the banking sector and
improving financing conditions should help with the pick-up in economic
activity. In 2016, strengthened domestic and foreign demand and a
continuation of very accommodative monetary policy associated with low
financing costs should further strengthen growth.
In 2014, the
range of Member States' growth rates is expected to remain broad,
from -2.8% (Cyprus) to 4.6% (Ireland). However, growth differences are
expected to decline over the next two years. In 2015 and 2016, all EU
countries are set to register positive growth. This is also when the
lagged impact of already implemented reforms should be felt more
strongly.
A slow return of modest economic growth
The
EU’s recovery appears weak, in comparison to other advanced economies
and with respect to historical examples of post-financial crisis
recoveries, even though these too were typically slow and fragile. Over
the forecast horizon, domestic demand should benefit increasingly from
the very accommodative monetary policy, the progress made in reducing
private debt burdens and the broadly neutral fiscal stance. Private
investment should recover gradually, also benefitting from improving
demand prospects and catching-up effects, though initially held back by
ample spare capacities. Private consumption is set to expand moderately
in 2015 and 2016, supported by low commodity prices and rising
disposable incomes, as the labour market gradually improves. Public
consumption is expected to contribute marginally to growth. Against the
backdrop of a moderate expansion of world trade, net exports are likely
to contribute only marginally to GDP growth over the coming years.
Labour market conditions improving only slowly...
Job
creation has been moderate and unemployment rates have fallen slightly
from high levels. Since economic growth is expected to gain momentum
gradually, more meaningful labour market improvements should occur
towards the end of the forecast horizon. The unemployment rate is set to
fall to 9.5% in the EU and 10.8 % in the euro area in 2016.
The
trend towards lower inflation has continued over 2014 in EU Member
States, driven by lower commodity prices and substantial economic slack.
Inflation is set to remain very low in 2014. As economic activity
gradually strengthens and wages rise, inflation should increase, also
helped by the recent depreciation of the euro. In the EU, inflation is
projected at 0.6% in 2014, 1.0% in 2015 and 1.6% in 2016. HICP
(Harmonised Index of Consumer Prices) inflation in the euro area is
forecast at 0.5% this year and 0.8% in 2015 before rising to 1.5% in
2016.
The reduction in general government deficits is set to
continue. The deficit–to-GDP ratios in both the EU and the euro area are
set to decrease further this year, albeit more slowly than in 2013, to
respectively 3.0 % and 2.6 %. Government deficits are forecast to
continue falling over the next two years, helped by strengthening
economic activity. The fiscal policy stance is expected to be close to
neutral in 2014 and 2015. The debt-to-GDP ratios of the EU and the euro
area are expected to peak next year at 88.3 % and 94.8 % respectively
(under the European System of Accounts 2010 definition).
Risks to the outlook remain tilted to the downside
Downside
risks to the growth outlook still dominate on the back of geopolitical
tensions, fragility in financial markets and the risk of incomplete
implementation of structural reforms. The risks to the inflation outlook
remain balanced.
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