Wednesday

25th May 2022

EU recovery to slow this year

  • Moscovici: "The European economy continues to expand modestly" (Photo: European Commission)

The European economy will grow less than expected this year amid a "deteriorating international atmosphere", the European Commission has said.

In its Spring Forecasts published on Tuesday (3 May), the EU executive said the bloc will register a 1.8 percent growth of GDP in 2016, while the eurozone would grow by 1.6 percent.

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The latest forecasts published in February were 1.9 percent and 1.7 percent, respectively.

In 2017, the commission said on Tuesday, the growth could be 1.9 percent in the EU and 1.8 percent in the eurozone. In February it said the growth would be 2 percent and 1.9 percent.

These figures were already down from previous forecasts in November.

"The European economy continues to expand modestly", EU commissioner for economic affairs Pierre Moscovici said at a press conference.

Less debt and deficit

Moscovici tried to strike a balance between bad news and good news.

On the positive side, Moscovici said that unemployment should continue to fall, although "too slowly in comparison to legitimate expectations in society".

The commission expects the unemployment rate to decrease from 9.4 percent in 2015 in the EU to 8.9 percent in 2016 and from 8.5 percent in 8.5 percent in 2017. In the eurozone, it would go down from 10.9 percent in 2015 to 10.3 percent in 2016 and to 9.9 percent in 2017.

The commissioner also noted that public deficit and debt will continue to decrease.

In the eurozone, the overall public deficit will be under 2 percent, at 1.9, against 2.1 percent in 2015. Only three countries - Greece, Spain and France - will have a deficit that exceeds the EU-authorised 3-percent bar.

On the negative side, in addition to the revised downwards forecasts, Moscovici said that inflation in the EU was expected "to remain negative in nearer term and remain very low for a longer period than previously forecasted".

After consumer prices remained stable in 2015, at 0.0 percent, they will increase by only 0.2 percent this year before taking off in 2017 with 1.4 percent.

By then, Moscovici said, "higher wages and steady demand growth should increase domestic price pressure".

While the commission still expects to see a positive impact of austerity policies and structural reforms inside the EU, the international environment remains a concern.

"The prospects for global growth have been less favourable" since the publication of the Winter Forecasts in February, Moscovici said, adding that global growth is at its slowest since 2009.

As a result, EU exports will continue to fall at least until the end of the year and investment is sill lagging behind normal levels.

Moscovici assured that the EU commission's €315-billion investment plan had "increasingly tangible results on private and public investment". But he said that EU countries should do more to prepare for the future.

He said that insisting on reducing public deficit and calling for more public sector investment where not contradictory.

"There is no schizophrenia," he said, adding that "if deficit contributed to growth, we would know it".

"Deficit and public debt are the enemy of investment," he said. "The more it costs to repay debts, the less room there is for productive spending. What counts is the quality of public spending".

'Reasoned optimism' on Greece

The commissioner drew a broad picture of the EU economy and refused to delve into specific cases, which he will present in the EU executive's recommendations to EU countries later this month.

Spain, where elections will take place on 26 June after an inconclusive vote in December, will be an interesting country to follow. It is expected to register one of the highest growth rates this year, on 2.6 percent, but will miss the 3-percent deficit target and could fall under an EU punitive procedure.

France, which will have presidential and parliamentary elections next year, is also expected to miss the target both this year and next year. But Moscovici, a former French finance minister, said EU compliance was "still doable" if the government managed its finances "very seriously".

In Greece, the commission expects negative growth this year, with -0.3 percent, but a recovery next year with a 2.7 percent growth. That will depend on the implementation of reforms asked by the country's creditors, Moscovici said.

A finance ministers’ meeting will take place on Monday (9 May) to validate an agreement still to be concluded between the Greek government and the quartet of lenders - the European Commission, the European Central Bank, the European Stability Mechanism and the International Monetary Fund.

The deal is needed to unblock a new tranche of financial aid.

While both sides agree on 99 percent of the main part of the deal, an additional request that Greece now adopts laws on future cuts in case its finances deteriorate in 2018 is blocking the discussion.

Moscovici said he had "reasonable optimism" that ministers will be able to rubber-stamp a deal on Monday.

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