Tuesday

20th Feb 2018

EU registers 'highest economic growth rate in 10 years'

  • "We have entered a new phase with a concrete impact on economic indicators," said EU commissioner Moscovici (Photo: European Commission)

The European Commission on Thursday (9 November) gave an optimistic view of the EU economy, saying that it is "on track to grow at its fastest pace in a decade this year."

According to the EU executive's Autumn Economic Forecasts, the eurozone economy will grow by 2.2 percent this year, 2.1 percent next year and at 1.9 percent in 2019.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

In its previous forecasts in May, the Commission counted on only a 1.9 percent growth this year and next year.

For the whole EU, including non-eurozone countries, growth is expected to be a "robust" 2.3 percent this year and 1.9 percent next year - compared to 1.9 percent for both years that was expected in May.

"This is the highest growth rate in 10 years," said EU economic affairs commissioner Pierre Moscovici said at a press conference.

He pointed out that for the first time in a decade that all EU countries will grow this year.

"We have entered a new phase with a concrete impact on economic indicators," he said, adding that the effects were now "being felt by citizens".

'Atypical' recovery

Moscovici explained that the improved prospects were due to "resilient private consumption, stronger growth around the world, and falling unemployment". He added that the investment in the EU is "picking up" and that confidence in economy has "considerably brightened".

He noted however that the recovery is "atypical", as it is "dependent on policy support" - a reference to the European Central Bank policy of low interest rates and massive bond buying.

He also noted that the current growth cycle is characterised by "less output" than previous cycles, and that "a sluggish wage growth partly reflects low productivity growth and persistent slack in [the] labour market."

Outside Europe, international tensions as well as adjustments in the Chinese economy or possible protectionist measures by the US mean that the Commission cannot predict whether EU's economic situation will "turn out better or worse than forecast".

But for the first time, risks surrounding the economic outlook are "broadly balanced" instead of "tilted to the down side".

Internal developments could however derail the EU growth perspective.

"While market reactions to recent events in Catalonia have remained contained, the risk exists that future developments could have an impact on economic growth," the Commission noted in its reports, adding that the size of the impact "cannot be anticipated at this stage."

With a 3.1 percent growth this year, Spain is one of eurozone's most dynamic countries, and it should soon be able to exit the deficit procedure it has been under since 2009.

The Spanish deficit could fall to 3.1 percent of GDP this year, down from 4.5 percent in 2016, and the Commission expects it will continue to shrink to 2.4 percent in 2018 and 1.7 percent in 2019.

France and Italy

France, the other eurozone country under a deficit procedure, will also decrease its deficit, to 3 percent this year. Contrary to May's forecasts, the Commission now expects the French deficit to remain under 3 percent in 2018 - at 2.9 percent.

Moscovici, the French member of the Commission, said the decision over closing the procedure will be taken in spring 2018. He said it was "desirable and possible" but that France had only a "small room for manoeuvre" to ensure that result.

In its first forecasts report since Emmanuel Macron became French president, the Commission reckoned that "domestic risks are slightly tilted to the upside."

It said that "recent cost-competitiveness gains could help exporters to better absorb the euro's appreciation than in the past," and that "higher corporate investment could help boost potential growth, leading to self-fulfilling higher growth expectations."

But it noted that "deficit-increasing measures" such as a housing tax exemption and the replacement of the wealth tax by a tax on real estate wealth will be only "partially compensated".

The country with the lowest growth rate this year will be Italy - 1.5 percent - ahead of an uncertain electoral year. But Moscovici insisted that the country is "on the right track" even if it has to "continue efforts to strengthen its economic structures and make the necessary adjustments."

The Commission noted in its report that while public and private consumption are projected to decelerate, public and private investment is "set to pick up sizeably."

After the near collapse of the Monte dei Paschi di Siena bank threatened Italy's economy, the report also noted that "recent government actions to address acute risks in weaker banks could help unclog bank lending and further reduce downside risks, while structural reforms are expected to lift potential growth."

UK and Greece

The Commission noted the the prospect of Brexit "is already having an impact on economic activity" and insisted that its forecasts for 2019 where based "on a purely technical assumption of status quo in terms of trading relations between the EU-27 and the UK."

UK growth slowed down this year - to 1.5 percent from 2.3 percent in 2015 and 1.8 percent in 2016 - because higher prices led to lower consumption.

In the coming months and years, the Commission noted, "business investment is projected to remain subdued following a period of heightened uncertainty, while net export growth is forecast to moderate marginally, in line with export markets."

Greece is another country where the coming months will be crucial, with the end of the current bailout programme next summer.

The Commission revised downward its forecasts for Greek growth this year - to 1.6 percent, compared to a 2.1 percent forecasts in May.

The delay in closing the second review on the programme, earlier this year, is a "major explanation," Moscovici said, as consumption and investment were "hit more than we had expected" by uncertainty over negotiations between Athens and its creditors.

"My general message: let's not waste time," the commissioner added, as Greece is starting the bailout's third review and has to prepare to return on financial markets next year.

ECB slows down eurozone support scheme

Starting in January, the European Central Bank will reduce its emergency bond-buying programme from €60 billion to €30 billion a month.

Analysis

Juncker's euro-push could risk unity, warns eastern flank

The EU Commission chief hopes that as Emmanuel Macron pushes for euro area countries to integrate further creating a multi-speed Europe, central European members will be more inclined to join the single currency. Are they?

Give Macron 'a chance', says EU finance chief

EU finance chief Moscovici expected France to reduce its deficit, but put "no pressure" on its new leader. All EU member states are expected to grow this year.

Commission warns Italy over high debt level

The Italian government must demonstrate it is making an effort, or the EU will consider launching a procedure. France and Romania are also under scrutiny.

Baltic states demand bigger EU budget

The leaders of Estonia, Latvia, and Lithuania say in a joint letter that they are open to talks on creating "new own resources" for a bigger EU budget after the UK leaves the EU.

News in Brief

  1. MEPs approve anti-smuggling bill on tobacco
  2. SPD members start voting on new Merkel-led government
  3. Barroso lobbied Katainen for Goldman Sachs
  4. Berlusconi's coalition ahead with 34.7% support
  5. Moscovici: Greece '99 percent' there to get new bailout
  6. Simone Veil to enter France's Pantheon in July
  7. German poll puts far-right AfD ahead of SPD for first time
  8. Commissioners poised to join EU-Mexico trade talks

Stakeholders' Highlights

  1. Mission of China to the EUChina-EU Tourism Year to Promote Business and Mutual Ties
  2. European Jewish CongressAt “An End to Antisemitism!” Conference, Dr. Kantor Calls for Ambitious Solutions
  3. UNESDAA Year Ago UNESDA Members Pledged to Reduce Added Sugars in Soft Drinks by 10%
  4. International Partnership for Human RightsUzbekistan: Investigate Torture of Journalist
  5. EPSUMovie Premiere: 'Up to The Last Drop' - 22 February, Brussels
  6. CESICESI@Noon on ‘Digitalisation & Future of Work: Social Protection For All?’ - March 7
  7. UNICEFExecutive Director's Committment to Tackling Sexual Exploitation and Abuse of Children
  8. Nordic Council of MinistersState of the Nordic Region 2018: Facts, Figures and Rankings of the 74 Regions
  9. Mission of China to the EUDigital Economy Shaping China's Future, Over 30% of GDP
  10. Macedonian Human Rights Movement Int.Suing the Governments of Macedonia and Greece for Changing Macedonia's Name
  11. Dialogue PlatformBeyond the Errors in the War on Terror: How to Fight Global Militarism - 22 February
  12. Swedish EnterprisesHarnessing Globalization- at What Cost? Keynote Speaker Commissioner Malmström

Latest News

  1. A European budget: securing a prosperous future for Europe
  2. Poland wrong to log in ancient forest, says EU lawyer
  3. EU taxpayers risk bailing out MEP pension scheme
  4. Commissioner Katainen confirms Barroso lobbied him
  5. Eurogroup chief pledge on transparency after meeting MPs
  6. Poland shows no sign of concessions to Commission
  7. Spain's De Guindos to be ECB vice-president
  8. Conservative 'buccaneering Brexit' narrative unrealistic

Stakeholders' Highlights

  1. European Friends of ArmeniaSave The Date 28/02: “Nagorno-Karabakh & the EU: 1988-2018”
  2. European Heart NetworkSmart CAP is Triple Win for Economy, Environment and Health
  3. European Free AlllianceEFA Joined the Protest in Aiacciu to Solicit a Dialogue After the Elections
  4. EPSUDrinking Water Directive Step Forward but Human Right to Water Not Recognized
  5. European Gaming & Betting AssociationGambling Operators File Data Protection Complaint Against Payment Block in Norway
  6. European Jewish CongressEJC Expresses Deep Concern Over Proposed Holocaust Law in Poland
  7. CECEConstruction Industry Gets Together to Discuss the Digital Revolution @ the EU Industry Days
  8. Mission of China to the EUChina-EU Relations in the New Era
  9. European Free AlllianceEnd Discrimination of European Minorities - Sign the Minority Safepack Initiative
  10. Centre Maurits Coppieters“Diversity Shouldn’t Be Only a Slogan” Lorant Vincze (Fuen) Warns European Commission
  11. Dialogue PlatformWhat Can Christians Learn from a Global Islamic Movement?
  12. European Jewish CongressEJC President Warns Europe as Holocaust Memory Fades

Stakeholders' Highlights

  1. European Free AlllianceNo Justice From the Spanish Supreme Court Ruling
  2. Nordic Council of MinistersNordic Solutions for Sustainable Cities: New Grants Awarded for Branding Projects
  3. Mission of China to the EUTrade Between China, Belt and Road Countries up 15%
  4. Nordic Council of MinistersOresund Inspires Other EU Border Regions to Work Together to Generate Growth
  5. Mission of China to the EUTrade Between China, Belt and Road Countries up 15%
  6. AJC Transatlantic InstituteAJC Calls on EU to Sanction Iran’s Revolutionary Guards, Expel Ambassadors
  7. ILGA EuropeFreedom of Movement and Same-Sex Couples in Romania – Case Update!
  8. EU2017EEEstonia Completes First EU Presidency, Introduced New Topics to the Agenda
  9. Bio-Based IndustriesLeading the Transition Towards a Post-Petroleum Society
  10. ACCAWelcomes the Start of the New Bulgarian Presidency
  11. Mission of China to the EUPremier Li and President Tusk Stress Importance of Ties at ASEM Summit
  12. European Jewish CongressChair of EU Parliament Working Group on Antisemitism Condemns Wave of Attacks