BRUSSELS, DECEMBER 17, 2015
— The economic recovery in the European Union (EU) is gaining strength,
but the pace of growth continues to be modest, despite accommodative
monetary policy and favorable financial conditions, and investment
remains subdued, says the new World Bank EU Regular Economic Report, a semiannual publication that covers economic developments, prospects, and economic policies in the EU.
“The
EU is gradually emerging from...
a protracted economic downturn that led
to an increase in poverty in many countries. Continued easing of
financial conditions, improved confidence, low commodity prices and a
reduced drag from fiscal consolidation will continue to support growth
in 2015 and 2016,” said Doerte Doemeland, World Bank Lead Economist and co-author of the report. “However,
a prolonged period of low investment growth, a slowdown in
emerging-market growth, higher financial volatility and regional
tensions could undermine the outlook”.
Private
consumption is the main driver of the EU recovery. Growing wages and
employment, bolstered by low consumer-price inflation due largely to
subdued commodity prices, have raised household incomes and spending.
Youth unemployment is also declining, but remains elevated in some
countries, especially in Central and Southern Europe, where further
support may be required to provide education and training to ensure they
have marketable skills. However, as investors remain concerned about
the strength of the recovery, and households and corporations continued
to pay down debts, investment remains the weak link to a more vigorous
and sustained recovery.
The
recovery is leading to a decline in poverty rates, which surged across
the EU during the crisis despite significant social protection systems.
While EU countries are among the biggest spenders on social protection
in the world, some EU countries have been unable to provide effective
protection for their poorest citizens through poverty-targeted programs.
Some countries, especially in Southern and Central Europe, saw cuts in
social assistance spending during the crisis. Reforms for making social
protection systems more effective in supporting the poor include the
introduction of guaranteed minimum income (GMI) programs, maintaining
the effective coverage and adequacy of existing social exclusion
programs, and reducing the leakages of social assistance transfers to
the rich.
“The EU needs to turn current tailwinds into self-sustaining growth through continued structural reform,” said Theo Thomas, World Bank Lead Economist and co-author of the report. “Continuing
to remove constraints on businesses, by reducing rigidities in labor
and product markets, and ensuring labor has the right skills through
investing in education and training are likely to raise the EU’s
long-term growth potential. In this context, focusing social assistance
systems on the poorest and most vulnerable groups, while ensuring that
spending is affordable over the long-term, could continue to reduce
poverty.”
The
World Bank expects growth in the EU to reach 2.0 percent in 2015 and
2.1 percent in 2016. It projects that growth will strengthen from 1.8
percent (y-o-y) in the first half of 2015, with Central Europe
experiencing the highest growth, driven by the Czech Republic, Poland
and Romania. Romania is expected to grow at 3.6 percent in 2015, and 3.9
percent in 2016, fueled by a surge in private consumption and supported
by fiscal measures. Poland is projected to reach 3.5 percent in 2015
and remain above this level over the medium term, as improved labor
market conditions raise real disposable household incomes and
consumption. Southern Europe’s growth rates, at 1.4 percent in 2015 and
1.6 percent in 2016, are likely to be the slowest, but a significant
improvement from less than 0.5 percent in 2014.