The autumn economic forecasts of the European Commission, which were published on Thursday 9 November, flag up continued economic growth in the Eurozone.
Average growth is expected to stand at 2.2% of GDP in 2017, a level higher than the rate of 1.7% predicted in the spring (see EUROPE 11786). This trend is confirmed in the entire European Union, with growth expected to stand at 2.3% of GDP this year, while this spring, the institution predicted that GDP would grow by 1.9%. This pace is expected to be maintained in 2018 and 2019, when the Commission anticipates growth of 2.1% and 1.9% of GDP respectively in both the Eurozone and the EU as a whole.
The employment market has also seen positive results, with the average unemployment rate in the Eurozone expected to stand at 9.1% of the active population this year, its lowest level since 2009, then 8.5% and 7.9% in 2018 and 2019. The average inflation rate in the Eurozone is expected to remain fairly low at 1.5% in 2017, 1.4% in 2018, before rising to 1.6% in 2019.
On the public finance front, the nominal deficit will continue to fall, reaching 1.1% of GDP in 2017 and, assuming the status quo, 0.8% in 2018 and 0.9% in 2019. At 3.1%, Spain is expected to be the only EU country with a deficit above the 3.0% of GDP mark this year, with France just escaping with a budgetary performance below the regulatory framework (2.9% of GDP).
In 2018, all EU countries will come under the preventative arm of the Stability Pact, as long as Spain and France are able to leave the excessive deficit procedure. However, no decision will be made before spring 2018, when the final budgetary figures for 2017 are announced.
It is worth noting that eight member states - Lithuania (0.1%), Luxembourg (0.5%), the Netherlands (0.7%), Germany, Malta and Sweden (0.9%), Cyprus (1.1%) and the Czech Republic (1.2%) - will have a budgetary surplus. Bulgaria will have a budgetary balance.
As economic conditions are favourable, the finance ministers' attention will focus more on reducing debt (see EUROPE 11899). Concerning government debt, the downward trend continues. The average debt in the Eurozone is expected to fall from 91.1% in 2016 to 89.3% of GDP in 2017, then 87.2% in 2018 and 85.2% in 2019. Here again, the gaps differ between member states. In 2017, the indebtedness to GDP ratio will be highest in Greece (179.6%), Italy (130.8%), Portugal (126.4%) and Cyprus (103.0%) and lowest in Estonia (9.2%), Luxembourg (23.7%) and Latvia (39.1%).
The European Commissioner for Economic and Financial Affairs, Pierre Moscovici, has welcomed the fact that after five years of moderate recovery, European growth has entered a phase of acceleration. There is more good news: the number of jobs created is on the increase, investment is recovering and public finances are being cleansed, he added, arguing that the Stability and Growth Pact is producing the desired results. On a less positive note, he added that the high level of debt and low growth in wages continue to be a problem.
Uncertainty over the economic impact of the Catalan crisis in Spain. The Catalan political crisis in Spain will have negative fallout for the national economy, but Moscovici feels that this will be limited (see EUROPE 11874). Spanish growth is expected to stand at 3.7% of GDP in 2017, then 2.5% in 2018, due to a drop in private consumption. In early November, the Bank of Spain warned of the potential economic consequences of the Catalan crisis (see EUROPE 11896).
In Spain, government deficit is expected to fall from 3.1% of GDP this year to 2.4% next, whilst the trajectory agreed upon provides for a deficit of 2.2% in 2018.
France hoping to come out of excessive deficit procedure. The Commission believes that French growth will remain solid over the coming months, to stand at 1.6% of GDP in 2017, 1.7% in 2018 and 1.6% in 2019.
On the budgetary front, although government deficit stood at 3.4% of GDP in 2016, it is expected to fall below the 3% mark in 2017, to 2.9% of GDP, and is expected to remain the same in 2018.
Acknowledging that the leeway available to the French authorities is limited, Moscovici said that he was confident in France's ability to comply with its budgetary commitments to come out of excessive deficit procedure next spring, as long as it maintains its efforts.
On Thursday, the French government confirmed its determination to implement the economic measures set out in the draft 2018 budget to come out of the excessive deficit procedure opened against it in 2009.
Government debt remains high in Italy. Although the European Commission anticipates that Italian growth will consolidate in the short term to stand at 1.5% of GDP this year, it is expected to slow down subsequently, to stand at 1.3% and 1.0% in 2018 and 2019 respectively. This trend will be the consequence of the appreciation of the euro, which is having a negative impact on exports, and the deceleration of household consumption. The unemployment rate, on the other hand, is expected to fall from 11.3% in 2017 to 10.5% in 2019.
On the Italian public finances, the deficit is expected to be 2.1% of GDP this year, then 1.8% and 2.0% in 2018 and 2019 respectively. Debt, on the other hand, is expected to grow further this year to 132.1% of GDP, or 0.1% more than last year. For 2018 and 2019, it is expected to fall, to 130.8% and then 130% of GDP.
Greece returns to growth. With the Hellenic Republic to finalise its third bailout plan successfully in mid-2018 (see EUROPE 11870), the Greek economy is starting to flourish. National GDP is expected to grow by 1.6% in 2017 (revised downwards from the rate of 2.1% predicted in the spring), then by 2.5% in 2018 and 2019.
In line with the commitments made in the framework of the bailout plan, the primary budgetary surplus (not including servicing of the debt) is expected to exceed 1.75% of GDP this year and stand at 3.5% in 2018 and 2019. In Greece, the employment market is doing better, with an unemployment rate of 21% in July, compared to 23.6% a year earlier.
However, the Commission anticipates that any delay in the conclusion of the third bailout plan could harm economic recovery.
German debt close to the 60% of GDP threshold. The vigour of the German economy will allow its public debt to continue its fall, to stand at 64.8% of GDP in 2017 and potentially below the 60% of GDP mark in 2019.
German growth is expected to remain at a level above 2% of GDP in 2017 and 2018, with unemployment practically non-existent, at 3.7% of the active population. As regards its current accounts, the German surpluses will be lower in 2017, standing at 7.8% of GDP, but still above the benchmark of 6%. The Commission is calling for a continued economic policy that stimulates investment and internal consumption, in order to reduce these surpluses.
Growth slows in the UK again. Growth in the United Kingdom is expected to continue its deceleration, falling from 1.8% of GDP in 2016 to 1.5% in 2017 and 1.3% in 2018.
The level of uncertainty related to the negotiations on the UK's withdrawal from the EU continue to be a burden on the growth of investments, the Commissioner said. He stressed that the British growth forecast for 2019, which has been put at 1.1% for the year of Brexit, was purely technical and by no means prejudged the type of relationship that the United Kingdom and the European Union will have in the future.
On the budgetary level, the British deficit is expected to fall from 2.9% in 2016 to 2.1% of GDP in 2017 and 1.9% in 2018, whilst government debt is expected to fall from 88.3% of GDP last year to 86.6% this year. In the UK, unemployment will remain low, at 4.5% of the active population. (Original version in French by Lucas Tripoteau and Mathieu Bion)