Geopolitical uncertainty, the backlash against globalisation, protectionist tendencies and the fallout from the British referendum are all weighing heavily upon recovery in Europe, the European Commission said on Wednesday 9 November in its autumn macro-economic forecasts.
GDP growth in the eurozone remains sluggish and is not expected to pick up in the coming years. Eurozone growth will stand at 1.7% in 2016, 1.5% in 2017 and 1.7% in 2018. In its spring forecasts, the Commission anticipated growth of 1.6% this year and 1.8% in 2017. Across the EU as a whole, the outlook is similar: 1.8% this year, 1.6% in 2017 and 1.8% in 2018 (the spring forecasts predicted 1.8% in 2016 and 1.9% for 2017).
When asked about the temptation to add Donald Trump's victory in the American presidential race to the list of risks driving growth down, European Commissioner for Economic and Monetary Affairs Pierre Moscovici, who described Trump on his Twitter account as the "worse option" on Tuesday evening, said that yesterday, we were still in the closing hours of the campaign and were talking about candidates. Now we are talking about a president and I hope that things will be different. "There are frustrations which led to this vote, which are echoed in our countries. Many citizens feel excluded from economic recovery". This "is not and cannot be the end of open societies and economies", he added, going on to explain that this presupposed accepting globalisation, which is not to everybody's liking as some citizens fear that they will be downgraded. "We must combine the two", answer the citizens' concerns and "remain in a movement that pursues the openness of trade", as these are the drivers of growth.
This backlash against globalisation seems to have the Commission worried and takes up an entire chapter of its economic forecasts. It points out that the debate has been overshadowed by the financial and debt crisis, and that the confrontation has been exacerbated by other factors, such as the migration crisis. It fears a return to protectionism, which would have the effect of shrinking growth, due to the resulting political uncertainty. For instance, a major concern in the British referendum was migration, it writes. And its figures for the United Kingdom do nothing but support this hypothesis. In 2017, growth will almost halve, reflecting the impact on confidence and the uncertainty of the vote, which went in favour of Brexit. In its spring forecasts, which were presented in May, it predicted growth in the order of 1.9% of GDP for the UK. This figure has been trimmed to 1%. The post-Brexit context will also impact upon the Irish economy, even though it is expected to ride it out reasonably well and will return one of the highest growth rates of the eurozone.
Next week, the Commission is to return its opinion on the draft budgets submitted to it by the member states. Madrid needs to bring its deficit below 3% in 2018, but the Commission is forecasting 3.2% for that year. Moscovici explained that this figure is calcuated on the basis of the status quo and assuming there is no budgetary law for 2017, and added that the reduction is based largely on growth. Spain has just managed to put together a government after months of political wrangling. The commissioner said that he awaited a draft budget as soon as possible.
France is expected to fly under the radar in 2017 (a deficit of 2.9%). On the basis of the status quo, the deficit is expected to increase again in 2018 to stand at 3.1%. Its growth will be 1.4% in 2017 and 1.7% in 2018, whilst its debt is creeping up to the level of its annual wealth (96.8% in 2017 and 97.1% in 2018).
Following two days of heated debate on the Italian budget (the president of the Commission is reported to have said on Monday that the cost of migration and reconstruction would add 0.1% of GDP to the Italian deficit, whilst Italy has forwarded the figure of 0.4%), Moscovici said that the Commission should try to take fair and proportionate account of the expenditure that needs to be made for hosting refugees on behalf of the other countries of the EU and the expenditure to prevent and clear up after the natural disasters of earthquakes. (Original version in French by Élodie Lamer)