EU Economy
European Commission forecasts slow recovery with very low inflation
By Finfacts Team
Nov 4, 2014 - 2:01 PM

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Eurozone countries in blue

The European Commission's autumn forecast published Tuesday projects weak economic growth for the rest of this year in both the EU and the Eurozone. Real GDP growth is expected to reach 1.3% in the EU and 0.8% in the Eurozone for 2014 as a whole, down from 1.2% six months ago. 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."

Inflation in the Eurozone will remain below the close-to 2% target of the European Central Bank until at least 2016, which is likely to trigger more aggressive measures by the ECB such as large-scale purchases of government bonds and other assets.

The Commission said Eurozone inflation is likely to be just 0.5% this year and 0.8% in 2015, rising to 1.5% in 2016.

The Commission noted that the Irish business cycle is decoupling from that of the euro-area, with Ireland benefiting from its strong trade links with the more dynamic UK and US markets. Net exports and the recovery in domestic demand are likely to fuel real GDP growth of 4.6 % in 2014. Sustained growth is set to continue in 2015 and 2016 at around 3.6 %, with some stimulus provided by tax cuts and expenditure increasing measures in 2015.

The unemployment rate should fall further but remain above 8 % over the forecast horizon, putting a lid on wage demands.

UK growth was upgraded to 3.1% from 2.7% forecast in the spring.

Germany will grow by 1.3% in 2014 and 1.1%  in 2015 - down from 2% in May - while the respective rates in France and Italy will be 0.3%, 0.7% - down from 1.5% in May - and -0.4% and 0.6%.

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."

Today's report said taht 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."

“Geopolitical tension and concerns about economic developments in important trading partners may have triggered a wait-and-see attitude among firms,” today's report commented on Germany.

“However, as domestic and external demand pick up, geopolitical and other external uncertainty decreases and favourable financing conditions hold, corporate investment should resume its recovery in 2015.”

Dreams of European Growth: France and Italy facing pre-euro economic problems

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