The Commission’s spring economic forecasts point to economic recovery enjoyed, albeit to different degrees, by all members of the European Union. Recovery is expected to continue at a fairly steady pace in 2017 and 2018.
“The European economy is entering its fifth consecutive year of growth, despite political and geopolitical uncertainty and the economic challenges it is facing”, the European Commissioner for Economic and Financial Affairs, Pierre Moscovici, told the press.
The Commission predicts growth in all EU member states for 2017 and 2018. Average Eurozone growth is expected to stand at 1.7% of GDP in 2017 and 1.8% of GDP in 2018. At EU level, growth is expected to be 1.9% of GDP in both years.
This return to economic activity can be explained by several factors, said Moscovici: an expansionist monetary policy, a neutral budgetary policy, household and business confidence, the gradual recovery of the global economy and job creation.
However, the Commissioner said that the EU economy would remain burdened by obstacles inherited from the crisis, such as the high rate of indebtedness, for some time.
The first consequence of the good economic news for the Commission: employment is doing better and better in Europe. In the Eurozone, for instance, the European institution predicts an average unemployment rate of 9.4% in 2017 and 8.9% in 2018, the lowest level since 2009. However, considerable disparities remain. In 2017, 4.0% of the active population in Germany will be out of work, compared to 22.8% in Greece.
More good news, according to Moscovici: the public finances of the EU countries will continue to improve in 2017 and 2018, albeit at a slightly slower pace than in previous years, due to the efforts that have already been made in previous years. The average debt of the Eurozone countries will fall from 91.3% of GDP in 2016 to 90.3% of GDP in 2017 and 89.0% of GDP in 2018.
But here again, considerable disparities persist, with government indebtedness in Germany dropping to 65.8% of GDP whilst Greek government debt will fall to 178.8% of GDP. Four Eurozone countries will have a debt equivalent to more than 100% of GDP this year: Greece, Italy (133.1% of GDP), Portugal (126.2%) and Belgium (105.6%).
Finalising talks between Athens and its creditors. As regards Greece, Moscovici first of all congratulated the country on a return to growth in 2016 and strong growth forecasts for 2017 and 2018 (2.1% and 2.8% of GDP respectively). The 2017 forecasts have, however, been reviewed downwards compared to the winter economic forecasts (2.7% of GDP), due to the delay in finalising the second monitoring mission of the third bailout plan. The Commissioner added that Greek growth is aligned on the progress and delays in the programme. This is one of the reasons the Commission is urging the parties to conclude this second mission (see EUROPE 11784).
Moscovici highlighted the Greek budgetary performance, with a primary budgetary surplus (not including servicing of the debt) of 4.2% of GDP for 2016, against a target of 0.5% of GDP. The Commission has also expressed confidence that the Greek authorities will reach the target of 1.75% of GDP and 3.5% of GDP for their primary budgetary surplus in 2017 and 2018.
Finally, the Commissioner declined to be drawn on the possibility of ending excessive deficit procedures, to be discussed on 17 May. This is the subject of a reflection within the European institution, but has not yet been settled (see EUROPE 11773). Would sending out this kind of signal a few days ahead of the Eurogroup meeting scheduled for Monday 22 May be the best way of winning over the creditors who are not convinced of the need to adopt measures to relieve the Greek debt in the medium term?
The UK is doing well, despite the uncertainty. The UK seems to be riding out the uncertainty caused by the prospect of Brexit. For instance, according to the Commission’s latest estimates, British growth is expected to stand at 1.8% of GDP this year, Moscovici said. However, as internal demand was one of the key forces driving growth in 2016, increasing by 2.8% on 2015, its decrease due to prices rising faster than salaries will undoubtedly have a downwards impact on growth in 2018 (+1.3% of GDP). Similarly, productive investments are expected to stagnate in 2017 and 2018, due to the uncertainty over the withdrawal of the UK from the EU. Conversely, the depreciation of the pound sterling is expected to be favourable to exports.
Spain puts in a convincing performance. Lastly, Moscovici expressed satisfaction at Spain’s economic results. The country, which is enjoying strong growth, is still – alongside France (see other article) – under excessive deficit proceedings.
With higher growth than expected for the first quarter of 2017 (0.8% of GDP), the Commission has increased its growth forecasts upwards, to 2.8% of GDP in 2017 and 2.4% of GDP in 2018. This year, furthermore, Spanish GDP is expected to be higher than before the economic crisis.
The Commissioner reiterated that one of the main drivers of the Spanish economy was internal demand, although this could fall off in the coming months. Despite a slight downturn in job creation anticipated by the European Commission for the years 2017 and 2018, the unemployment rate is expected to fall below 16% next year, the lowest level since 2009.
Finally, due to the forecasted reduction of the Spanish deficit in 2017 and 2018, 3.2% and 2.6% of GDP respectively, Moscovici expressed optimism that the country could come out of excessive deficit proceedings next year. (Original version in French by Lucas Tripoteau)