Brussels, 05/02/2015 (Agence Europe) - For the first time since 2007, economic growth is expected to feature in every country of the European Union in 2015, according to the winter economic forecasts published by the European Commission on Thursday 5 February.
The economic situation is “a bit better today” than in November 2014, said the Commissioner for Economic and Financial Affairs, Pierre Moscovici. Among the reasons which led the Commission to its increased optimism, he referred to the decision of the ECB to launch a vast programme for the buy-back of public and private bonds (European-style 'QE') in March (see EUROPE 11236), the sharp drop in oil prices, the depreciation of the euro compared to the dollar and the European investment plan to be launched this year. Noting considerable differences between the member states, he called for the budgetary responsibility/reforms/ investment triptych to continue.
Assuming no policy changes, economic growth in the eurozone is expected to stand at 1.3% of GDP in 2015 and 1.9% of GDP in 2016 (1.1% and 1.7% in the November 2014 forecasts). At EU level, it is expected to stand at 1.7% in 2015 and 2.1% in 2016 (1.5% in 2.0%). The increase in GDP will be greatest in Ireland (3.5%), Malta (3.3%), Poland (3.2%) and Lithuania (3.0%) and lowest in Croatia (0.2%), Cyprus (0.4%), Italy (0.6%) and Austria and Finland (0.8% each).
However, this return to growth is still “not enough” substantially to reduce the unemployment curve, the Commissioner admitted. The proportion of the working population out of work will drop “slightly” (11.2% in 2015 compared to 11.6% in 2014 in the EU19; 9.8% in 2014 compared to 10.2% in 2015 in the EU28), but will remain “well above its pre-crisis level”, he said. In the euro area, unemployment will be highest in Greece (25% in 2015, compared to 26.6% in 2014), Spain (22.5% compared to 24.3%) and in Cyprus (10.2% compared to 11.0%). It will be lowest in Germany (4.9% in 2015 from 5.0% in 2014), Austria (5.2% compared to 5.0%) and the Netherlands (6.6% from 6.9%).
In 2015, inflation is expected to remain negative (-0.1%) in the eurozone and just to reach positive figures in the EU (0.2%), to climb gradually in 2016 (1.3% in the EU19, 1.4% in the EU28). Moscovici did not, however, use the term deflation. Inflation is expected to be negative in seven member states: Spain (-1.0%) Bulgaria (-0.5%), Greece, Italy, Slovenia and Denmark (-0.3% each) and Poland (-0.2%).
In terms of budgets, the Commission welcomed the fact that the policies carried out have had a “overall neutral” impact. The average deficit of the eurozone is predicted to fall from 2.6% of GDP in 2014 to 2.2% in 2015 and to 1.9% in 2016 (3.0%, 2.6% and 2.2% respectively in the EU28). In the EU19, only Spain (4.5%), France (4.1%) and Portugal (3.2%) are expected to register a public deficit above the threshold of 3% of GDP, the Commissioner noted. As regards government debt, the European institution hopes - once again - that the peak will be reached this year. It predicts an average debt compared to GDP of 94.4% in 2015 (94.3% in 2014) in the eurozone and of 88.3% (88.4%) in the EU. Here again, there are notable national differences. In the euro area, indebtedness in relation to the wealth produced will continue to be highest in Greece (170.2% in 2015 compared to 176.3% in 2014), Italy (133.0% compared to 131.9%), Portugal (124.5% compared to 128.9%). It will be lowest in Estonia (9.6%), Luxembourg (24.4%) and Latvia (36.5%).
In early March, the Commission will take position on the budgetary situations of France, Italy and Belgium in light of the latest budgetary figures available. It will apply its recent interpretation of the flexibility contained within the Stability and Growth Pact to these countries (see EUROPE 11229). The improvement of the economic situation combined with the use of the flexibility under the Pact has already indicated to many observers that the prospects of sanctions for these countries is becoming less likely. When asked about the negative assessment of the ECB regarding the text on the flexibility under the Pact, the Commissioner said that this was “by no means at odds with the Pact”, but allowed a “subtler use” of the European budgetary rules.
In the case of France, Moscovici acknowledged that there was a “gap” between the structural effort (not including contractual effect) required (0.5% of GDP) and the effort announced (0.3%). We will continue discussions on the “structural reforms” to be built upon, said the former French finance minister. According to the Commission, the French deficit stood at 4.3% of GDP in 2014, is expected to fall slightly (4.1%) in 2015 and to stabilise at this level next year, assuming a continuation of the current policy. Whilst Paris needs to bring its deficit below 3% of GDP in 2015 as part of the excessive deficit procedure launched against it, a grace period of two years seems inevitable as long as the promised reforms, in particular via the Macron Law, are indeed applied (see EUROPE 11225). Moscovici said there was “good news” for France: growth, predictions for which have been increased compared to November, will be “slight but respectable”. “The forecasts of the Commission and of the French government agree”, said the French finance minister, Michel Sapin, who pledged that France, which is “aware of its responsibilities, will respect its commitments”.
On Italy, Moscovici noted a “shared diagnosis” of the Italian economic situation with the authorities of the country: public debt is “still at a very high level” (estimated at 133.0% in 2015), whilst growth will be “low” (+0.6% anticipated in 2015). Following a further increase in 2014 (3.0%), the Italian deficit is expected to fall to 2.6% this year. In line with the flexibility rules of the Pact, the Commission is recommending a structural effort of 0.25% of GDP for 2015. This drop compared to the effort hitherto required (0.5%) is due to the “cyclical effect”, explained Moscovici, who expects Italy to clarify its agenda of structural reforms aiming to feed into growth.
In Belgium, growth is expected to amount to 1.1% of GDP in 2015 (1.4% in 2016). Public deficit, which exceeded 3.2% of GDP last year, is expected to be brought back below the 3% of GDP mark in 2015 (2.6%), whilst public debt will be relatively stable (106.4% and 106.8% of GDP) over the same period. Noting a “problem of competitiveness” in Belgium, Moscovici said that a “cautious budgetary policy (was) absolutely necessary” for the country, particularly to act on getting rid of the debt. This Friday, he will meet the Belgian finance minister to take stock of the situation. Upon the announcement of the Commission's economic forecasts for his country, the Belgian Prime Minister, Charles Michel, hailed it as “good news” which confirms that the “2015 budget is credible and realistic”. (MB)