• EU commissioner Siim Kallas (r) revised up the bloc's growth forecast for 2014, saying the EU's recovery is "gaining traction" (Photo: ec.europa.eu)

EU recovery 'gaining traction', amid fears of low inflation

05.05.14 @ 18:18

  1. By Benjamin Fox
  2. Benjamin email

BRUSSELS - The EU executive raised its growth projections across the Union to 1.6 percent for 2014, while its forecasts for the eurozone remain unchanged at 1.2 percent.

Neighbouring Baltic states Latvia and Lithuania are forecast to be the top-performing economies this year, achieving growth rates of 3.8 percent and 3.3 percent, respectively. Lithuania will become the 19th country to join the eurozone in January.

Siim Kallas, who is covering Olli Rehn's economic affairs portfolio while Rehn is on the European Parliament campaign trail, said that the figures showed the EU's economic recovery is "gaining traction" and becoming more "broad-based' across the bloc.

"The policies implemented in recent years are bearing fruit. Investment is rebounding. While unemployment remains high in many member states, the labour market has stabilised and we expect some improvement in the next two years".

Cyprus and Croatia, who joined the EU last summer, are expected to be the only countries in recession in 2014.

Meanwhile, the figures confirm that the Greek economy will expand slightly by 0.6 percent this year and will reach an impressive 2.9 percent growth rate in 2015. This will bring an end to six consecutive years of recession, which have wiped out more than 25 percent of Greece's economic output.

Kallas commented that financial market confidence was returning in Greece, noting that "the large amounts of private equity capital raised by Greek banks in recent weeks have exceeded market expectations".

But Veronica Nilsson, Confederal Secretary of the European Trade union Confederation described the bloc's unemployment rate of 10.5 percent as "a disgrace" which "should be worrying the European Commission far more than they seem to.”

The commission believes that the EU's jobless rate will fall to 10.1 percent next year and from 11.8 percent to 11.4 percent in the eurozone, with larger decreases of 2 percent and 1.5 percent respectively, expected in Greece and Spain, the countries with the highest unemployment rates.

But officials are becoming increasingly concerned that the EU's already sluggish recovery could be hit by low inflation.

Forecasts for price inflation have been revised down to 0.8 percent this year and 1.2 percent in 2015, well below the European Central Bank's (ECB's) target of 2 percent. A prolonged period of low inflation risks further subduing consumer demand, making it harder for businesses to create new jobs and make headway into the EU's large jobless total.

With the ECB's main interest rates already at a record low of 0.25 per cent since November, while the main rate on deposits has been at zero since July 2012, the Frankfurt-based bank, headed by Mario Draghi, is pondering whether to introduce negative interest rates or print money to stimulate more demand.

Meanwhile, Kallas said that the ongoing crisis in the Ukraine posed one of the greatest risks to the stability of the EU economy.

"The one main risk is clearly the external tensions and uncertainty which surrounds us, especially related to the crisis in Ukraine,” he said.

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