With average rates of 2.4% of GDP, growth in the Eurozone and the European Union hit its highest level for ten years in 2017, the European Commission announced on Thursday 3 May, when presenting its spring economic forecasts.
This economic expansion is expected to continue in 2018 and 2019, despite a slight downturn, to stand at 2.3% of GDP in the EU and 2.0% in the Eurozone.
“Our forecasts make clear that the European economic indicators are on green, that they are in many cases similar to before the financial crisis” of 2008, Pierre Moscovici, the European Commissioner for Economic and Financial Affairs, told the press. “However, I wouldn’t want to give the impression that everything is rosy”, he added.
Although growth is expected to continue to be strong up to 2019, the Commission believes the European economy is exposed to new external risks, such as the increase in protectionism and the pro-cyclical budgetary policies pursued in the United States. “We need to keep a very close eye on these risks”, the Commissioner said.
Additionally, difficulties in certain sectors and countries, and a slight down-turn in international trade, may explain the sluggishness of economic growth.
Although all member states will achieve economic growth in 2018 and 2019, it will vary greatly. Malta and Ireland are expected to see the highest rates this year (5.8% and 5.7% of GDP respectively), whilst Italy (1.5% of GDP) and Belgium and Denmark (1.8% of GDP) will be at the back of pack.
French growth for 2018 and 2019 is expected to stand at 2.0% and 1.8% of GDP, assuming the continued status quo. These rates are slightly below those of Germany (2.3% to 2.1% GDP), the largest economy in the Eurozone.
The situation for Greece, which will come out of the third and final financial bailout plan in August of this year (see EUROPE 12011), will also be observed with much interest, as the Commission’s forecasts are currently optimistic, predicting increases in GDP of 1.9% in 2018 and 2.3% in 2019.
“21 June [the theoretical date of the decision for Greece to exit the plan] will be an historic date”, said Moscovici, with regard to this.
While the annual inflation rate stood at 1.5% in 2017, the Commission anticipates that it will remain at this level this year and increase by 0.1% next year. The levels of development are expected to be similar in the EU28, with an annual inflation rate of 1.7% in 2017 and 2018, and 1.8% in 2019.
This very slight increase can be explained by the rise in oil prices, a shortage of labour and a significant increase in salaries in many member states.
Excessive deficit: end of tunnel in sight for Spain and France. This year, no Eurozone country will still have a nominal government deficit equal to or greater than 3% of GDP. “This is a red-letter day (…), an historic step”, Moscovici said.
Spain and France, the last two Eurozone countries still under an excessive deficit procedure, are expected to present a nominal government deficit of -2.6% and -2.3% of GDP respectively, having stood at 3.1% and 2.6% of GDP last year.
In the country-specific recommendations, to be announced on Wednesday 23 May, the Commission will therefore recommend drawing a line under the procedure for France. The country will then join the preventative arm of the Stability and Growth Pact, which requires member states to reduce the structural deficit (not including conjunctural effect) by a level of 0.6% per year. If the Spanish budgetary trajectory is confirmed, it will leave the procedure in 2019.
It is worth noting that Greece is expected to record a government deficit in nominal terms of -0.4% of GDP in 2018 and of -0.2% next year. The Greek primary budgetary surplus (not including servicing the debt) is expected to stand at 3.5% of GDP, in line with the Eurogroup’s decision of last June (see EUROPE 11810).
A fall in government debt. The improved state of public finances can also be seen in the government debt situations.
In 2017, the average government debt stood at 88.8% of GDP in the Eurozone, after several years in a row during which this rate had been in excess of 90%. The Commission anticipates that government indebtedness will continue to fall, with an average rate of 86.5% and 84.1% of GDP in 2018 and 2019 respectively.
Once again, this figure hides extreme differences between member states. Greece, Italy and Portugal are still the most indebted countries of the Eurozone, with anticipated government debts of 177.8%, 130.7% and 122.5% of GDP this year respectively. However, the three countries are expected to see these rates fall next year, to 170.3%, 129.7% at 119.5% respectively.
At the other end of the table, Estonia will have by far the lowest government debt this year, at just 8.8% of GDP.
Unemployment at a ten-year low. The improved economic situation can also be confirmed on the employment front.
Moscovici welcomed the current downwards tendency in the unemployment rate. “Unemployment is at its lowest for ten years", he said.
Unemployment, which has been estimated at 7.6% of the active population in 2017, is expected to fall to 7.1% in 2018 and 6.7% in 2019. In parallel, the number of people in work in the Eurozone has never been so high.
Even so, the Commission expresses concern at the possibility that certain vacant positions are still difficult to fill.
Once again, there are major national disparities. Greece, Spain and Italy are still expected to see the highest unemployment rates in the EU this year, of 20.1%, 15.3% and 10.8% of the active population respectively. In the opposite corner, these rates are expected to stand at 3.6% and 3.8% in Germany and the Netherlands respectively, with both countries being virtually at full employment.
The spring economic forecasts can be consulted at: https://bit.ly/2jouYC1. (Original version in French by Lucas Tripoteau)