Monday

18th Jun 2018

EU set for economic growth, but Greece to suffer downturn

  • Greece's growth forecast have been downgraded because of political uncertainties and lack of consumer confidence. (Photo: YoungJ523)

The European Commission published optimistic but cautious economic forecasts on Tuesday (5 May), upgrading the bloc’s growth prospects for this year but keeping them unchanged for next year.

According to the Spring forecast, the eurozone economy should grow by 1.5% in 2015, instead of the 1.3% projected in the Winter forecast, and 1.9% in 2016.

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The EU's overall growth is now predicted to reach 1.8% in 2015, instead of 1.7%, and 2.1% in 2016.

"Economic spring is with us. Recovery is sustained by external factors but also by economic policies which are beginning to bear fruits," finance commissioner Pierre Moscovici said.

Driven by private consumption, the European economy benefits from three "tailwind factors": the fall in oil prices, a weaker euro and the European Central Bank’s quantitative easing (QE) programme.

This bond buying operation had a "stronger than expected" effect on financial markets, "prevented an increase in real interest rates" and "should support lending, confidence, investment and ultimately economic growth," the commission said.

But the tensions with Russia and high unemployment cast a shadow on long-term projections and Moscovici warned that "this spring must not be just a season, we want it to last for long".

"More has to be done: real progress in investment; reforms that are still indispensable and budgetary responsibility. These are things that are absolutely necessary if we want Europe to be on long-term way to growth and job creation, which is the priority of this commission."

The unemployment rate is expected to decrease from 11.6% in 2014 to 11% in 2015 and 10.5% in 2016 in the eurozone. It is to go from 10.2% to 9.6% and 9.2% in the EU 28.

While large member states like Germany, Poland, Spain or the UK will experience growth above the EU average, Italy will return to growth with fragile 0.4% increase of its GDP in 2015 and 1.4% in 2016.

Ahead of a general election at the end of this year, Spain will be one of the fastest growing economies in the EU, with 2.8% expected this year and 2.6% in 2016, but it will miss its deficit and debt targets.

"Reforms are starting to bear fruits, must efforts need to be sustained," said Moscovici, adding that "an electoral year should not stop [us] from acting".

France

His native country, improved its growth prospect, with 1.1% expected in 2015 and 1.7% in 2016.

Its economy benefits from private consumption and a depreciation of the euro is helping its exports but "the delay in the recovery of investment is keeping GDP growth below the euro area average," says the commission.

French public deficit is expected to be 3.8% of the GDP in 2015 and 3.5% in 2016. But Moscovici said the €4 billion cuts planned in Paris is "a good basis" to avoid sanctions for excessive deficit if the economy is "solid, concrete and structural".

Greece’s growth forecast was drastically downgraded for 2015, from 2.5% predicted earlier this year to 0.5%

Greece

"The situation of uncertainty and the fact that we have not yet concluded the negotiations after 3 and a half month, have an impact on our growth projections as well as on public finances in Greece," Moscovici said.

"However we still believe there are bases for a significant recovery in 2016, provided that discussions get back on track and reform process can continue in Greece," he added.

The forecast for Greece had to be revised downward because of political uncertainty and a fall in investment since the beginning of the year, a EU official told EUobserver.

Consumer confidence is weak, despite a peak after the elections in January and growth is currently non-existent or very weak.

Forecasts for a recovery are based on tourism activity in the 3rd quarter of the year, supporting factors like low oil prices and weak euro and the hypothesis of an agreement between Greece and its lenders in the coming weak.

Germany

At the other side of the economic scale, German economy should grow by 1.9% in 2015 and 2% in 2016.

It is to continue to enjoy a strong current account surplus, for which a procedure has been launched by the commission.

Moscovici called on Germany to "do more in order to stimulate growth, investment and globally internal demand for the sake of the union as a whole".

2015: It's the economy, still

After a year of suspended action, the EU needs to show some results in 2015. But changing political landscapes in member states could prove a distraction.

Greece blames EU and IMF for 'obstacles' in talks

Greece took a publicly conciliatory line on bailout talks on Tuesday but a leaked government paper blamed the stalling discussions on the EU and the International monetary fund.

Eurogroup keeps alive hope of Greek deal

Eurozone finance ministers on Monday welcomed progress in talks between Greece and its lenders but could not say when a deal will be possible.

Greek bailout exit takes shape

At a meeting next week, eurozone finance ministers and the IMF are expected to agree on new cash, debt relief measures, and a monitoring mechanism to ensure that Greece can live without international aid for the first time since 2010.

Opinion

Eurozone needs institutional reform

Both the examples of Greece and Italy test the limits of a system with inherent weaknesses that feeds internal gaps, strengthens deficits and debts in the European South, and surpluses in the European North respectively.

Opinion

Europe could lose out in North Korean bonanza

South Korean businesses including Hyundai and Samsung are already scoping investment opportunities. Will North Korea become a 'new Vietnam' opportunity - or more like Myanmar, where slow Brussels policy-making meant EU exporters lost out.

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