30th Mar 2020

Economic recovery slow and painful, EU's Rehn says

  • Confidence returning to the eurozone economy, says Rehn

The EU economy will remain flat in 2013, EU economic affairs commissioner Olli Rehn said on Tuesday (5 November), as he downgraded the bloc's growth forecasts for 2014 and 2015.

Although the EU economy grew by 0.3 percent in the second quarter of 2013, offsetting an identical decline between January and March, the commission is not expecting any further growth in the remaining six months of the year.

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Meanwhile, the eurozone's GDP is to contract by 0.4 percent in 2013 and remain static across the EU before increasing by 1.1 percent and 1.7 in 2014 and 2015, according to the commission's autumn economic forecast.

However, Rehn said all 28 of the EU's member states would achieve economic growth by 2015.

He said the European economy had "reached a turning point" although he cautioned that "it is too early to declare victory: unemployment remains at unacceptably high levels."

Rehn said there were increasing signs that confidence among businesses and consumers was increasing, pointing out that the EU's economic sentiment indicator had hit its highest level for two years.

Latvia and Lithuania enjoyed the highest growth rates in 2012 and 2013, a trend which is expected to continue in 2014 and 2015.

At the other end of the economic spectrum, Greece is expected to end six straight years of recession - which has wiped out over a quarter of its output - in 2014 by reaching a 0.6 percent growth rate.

Cyprus and Slovenia are set to be the only countries in recession in 2014.

The commission also blames weaker-than-expected growth among emerging market economies such as China, India and Brazil, together with uncertainty over the US "fiscal cliff," for the sluggish pace of recovery.

The emerging market slowdown would have a drag on overall world trade and have a knock-on effect on Europe, said Rehn.

Dealing with the February 2014 fiscal cliff, which would see the US government default on its debt payments unless a deal on tax and spending programmes can be agreed by Democrats and Republicans, would require "very decisive action" by US lawmakers, he added.

The EU's double-dip recession has prompted a sharp rise in government debt levels to almost 90 percent across the bloc and 96 percent in the eurozone.

But debt levels in the EU's crisis countries are now stabilising.

Greece's debt mountain is expected to peak at 176 percent in 2013 before falling by 0.3 percent in 2014 and a further 5 percent in 2015.

Government austerity measures are also having a slow but noticeable effect. The average budget deficit in the EU will fall to around 3.5 percent of GDP in 2013 before reducing to 3 percent - the maximum allowed under EU rules - in 2014.

But there was little to cheer for Europe's jobless. Unemployment levels are likely to remain virtually unchanged, although they are forecast to fall from 12.2 percent to 11.8 percent across the eurozone by 2015.

For his part, ING chief economist Carsten Brzeski, told this website that the commission forecasts "reflect the sad truth about the European recovery. It is a very slow, fragile and anaemic recovery."

He added that "higher fiscal deficits in many problem countries, including France, and higher current account surpluses in core countries offer many test cases for the commission to prove that the new fiscal and surveillance rules really bite."

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