Brussels, 05/05/2015 (Agence Europe) - On Tuesday 5 May, the European Commission increased its growth forecasts for 2015 and 2016.
Unveiling the European Commission's Spring Economic Forecasts, the EU Economic and Financial Affairs Commissioner, Pierre Moscovici, said that the green shoots of recovery had arrived and a strong 'supporting wind' was boosting recovery in Europe thanks to external factors such as low oil prices, the fall in the value of the euro, supportive monetary policy from the ECB, along with internal factors such as structural reforms in the member states that were starting to bear fruit. In order to ensure the green shoots continues to grow, he called for a pursuit of reforms and budget consolidation adjusted in such a way as to encourage investment and growth in competitiveness.
In February, the Commission predicted average growth for 2015 of 1.3% of GDP in the eurozone and 1.7% in the wider EU (see EUROPE 11247), but now expected growth of slightly above 1.5% in the eurozone and 1.8% in the EU. For 2016, it expects growth under current policies to reach 1.9% in the eurozone and 2.1% in the EU28.
There are still wide differences in growth rates among the member states. In February, the Commission suggested positive growth in all member states for the first time since the economic crisis began in 2008, but this is not now expected to apply across the board as Cyprus may well go into recession. Its GDP is expected to fall by 0.5% in 2015, although the Commission was expecting recovery of 0.4% (EUROPE 11289). In 2015, economic growth is expected to be strongest in Ireland and Malta (both 3.6%), Luxembourg (3.4%) Poland (3.3%) and Slovakia (3.0%), with the lowest growth in Finland and Croatia (both 0.3%), Greece (0.5%, see separate article), Italy (0.6%) and Austria (0.8%).
These green shoots of recovery are barely to be seen on the jobs front. Moscovici admitted that the jobs market was slowly picking up and the number of long-term unemployed is too high in a number of countries. Unemployment is expected to slowly decline to 11% of the working population in the eurozone and 9.6% in the EU28. The highest unemployment levels are expected in Greece (25.6%), Spain (22.4%) and Croatia (17.0%) and the lowest in Germany (4.6%), the United Kingdom (5.4%), and the Czech Republic (5.6%).
Inflation is expected to remain low, at 0.1% this year for both the eurozone and the EU28. As a result of the quantitative easing (massive purchase of public and private bonds by the ECB until at least September 2016), inflation is expected to rise in 2016 to 1.5% in the eurozone and EU28 alike.
When it comes to the budget, the Commission believes that budget consolidation has had a broadly neutral impact. The average deficit in the eurozone is expected to fall from 2.4% of GDP in 2015 to 2.0% in 2016 (and from 2.9% to 2.5% in the EU28). The only countries that will have public deficits of above the 3% of GDP cut-off point laid down in EU budget rules are Croatia (5.6%), the United Kingdom (4.5%), Spain (4.5%), France (3.8%), Finland (3.3%) and Portugal (3.1%).
The Commission expects public debt levels to fall in 2015 with debt as a proportion of GDP falling from 94.2% to 94.0% in the eurozone and from 88.6% to 88.0% in the EU28. There are wide differences here between the member states. In the eurozone, debt as a proportion of growth in economic wealth will continue to be highest in Greece (180.2% of GDP in 2015, compared with 177.1% in 2014), Italy (133.1% compared with 132.1%) and Portugal (124.4% compared with 130.2%). The lowest levels will be in Estonia (10.3%), Luxembourg (24.9%) and Latvia (37.3%).
Quizzed about France's budget situation, Moscovici said that the French economic forecasts were on the rise with GDP expected to rise by 1.1% in 2015, driven by domestic demand, and this would lead to a rise in company investment in 2016 (see EUROPE 11299). The main challenge facing France, he said, was getting its competitiveness back on track, as structural reforms were going in the right direction. He urged the French authorities to keep up the good work in this domain and keep their budget policy aligned for growth.
Commenting on the extra savings of €4 billion demanded for 2015 in order to achieve structural savings of 0.5% of GDP in France (not including the impact of the economic cycle) and thus be given an extra two years, from 2015 to 2017, to get the public deficit back below the 3% cut-off point, the Commissioner said that the French announcements were a “good working basis.” An assessment of French policies will be published on Wednesday 13 May, looking at various measures France says are structural, such as easing the country's debt and tighter controls of tax evasion.
A high-ranking diplomat said about France last week that they were moving away from the idea of imposing penalties, but the risk had not totally disappeared. He said that France's commitment to tackle terrorism outside Europe against the backdrop of the worst threats to peace for twenty years had helped change the way its partners viewed the country and its economic situation.
Quizzed about Italy's budget situation, Moscovici welcomed the fact that growth had finally returned (to the tune of 0.6% of GDP). Italy's deficit is under control at 2.6% of GDP, so the main challenge for Rome is its “very high” public debt (133.1% of GDP in 2015, compared with 132.1% in 2016) and low growth, explained the Commissioner, adding that it was for the Italian government to say what measures it is planning to compensate for low government income. The Italian media talk about a shortfall of over €10 billion due to a recent ruling by Italy's constitutional court. Last week, the court threw out a measure by the Monti government (the previous government) freezing pensions higher than €1,400 in 2012 and 2013.
Finally, the Commissioner was asked about the economic policies to be recommended for countries with budget surpluses, such as Germany, which is expected to have a surplus of 0.6% of GDP this year. Moscovici said the economic performance of the eurozone's leading economy were to be praised, along with its announced investment plans, but Berlin “could do more” to encourage domestic consumption.
Country-specific recommendations due on 13 May. Based on its economic forecasts and national stability and reform programmes, the Commission will unveil its country-specific recommendations on 13 May, which will then be discussed by the ECOFIN Council in June and be formally adopted by the European Summit later in June. (Mathieu Bion)