Economic growth in the euro area and the European Union is currently in its 7th consecutive year and will continue at a moderate pace until 2021. However, a rebound in activity is not to be expected due to both external uncertainty factors, such as commercial tensions, and internal uncertainty factors, including the continuing possibility of a no-deal Brexit.
These are the main findings of the European Commission's autumn economic forecasts presented on Thursday 7 November, which forecast GDP growth - revised downwards - of 1.1% in 2019, 1.2% in 2020 and 2021 for the euro area and 1.4% in 2019, 2020 and 2021 for the European Union as a whole.
"The fundamentals remain robust until 2021", particularly in the service sector and household consumption, said the Economic Affairs Commissioner. Nevertheless, Pierre Moscovici referred to "growth undoubtedly held back by trade tensions" and weak global demand, two factors that weigh on the manufacturing industries, "Germany being the most affected" by this situation.
Above all, he noted, "the lack of rebound marks a change from previous forecasts" and will result in "a new period of moderate growth in the coming years". And, in terms of employment, hiring growth is slowing sharply, which will lead to a "stabilization" in unemployment: 7.6% in 2019, 7.4% in 2020, 7.3% in 2021 for the euro area.
Not surprisingly, national disparities within the EU remain high in terms of growth, deficit and public debt.
Wealth creation will increase in 2019 by 5.6% of national GDP, 5.0% and 4.6% respectively in Ireland (3.5% in 2020), Malta (4.2% in 2020) and Hungary (2.8% in 2020). No Member State will be in recession this year or next year. But growth will remain sluggish in Italy (0.1% in 2019 and 0.4% in 2020), moderate in Germany (0.4% in 2019 and 1.0% in 2020) and more robust in France (1.3% in 2019 and 2020) and especially in Spain (1.9% in 2019 and 1.5% in 2020).
Apart from Romania (-3.6% of GDP) and France (-3.1%), no Member State will record a public deficit this year that exceeds the 3% of national GDP threshold set by European fiscal rules. Fourteen countries - including nine from the euro area - will have a budget surplus in 2019, with Cyprus in the lead (3.7% of GDP). Lithuania will be in balance over the next 2 years, while Italy is expected to have a nominal deficit of -2.2% of GDP in 2019 and -2.3% in 2020.
Overall, the fiscal position in the euro area will expand very slightly over the next 2 years, with the average public deficit gradually increasing each year: -0.8% of GDP in 2019, -0.9% in 2020, -1.0% in 2021.
With regard to public debt, the most indebted countries in relation to their national wealth remain Greece (175.2% of GDP in 2019, 169.3% in 2020), Italy (136.2% in 2019, 136.8% in 2020), Portugal (119.5% in 2019, 117.1% in 2020). Debt is expected to stagnate, while remaining at a level close to, but below, 100% of GDP in Belgium, France and Spain.
Asked about the fiscal policy that Member States should adopt to support growth, Mr Moscovici reiterated that countries with fragile public finances, such as Italy and France, should pursue structural reforms to increase their potential growth, while countries with "massive " budget surpluses, such as Germany, should invest to support domestic demand.
"If it's cold, maybe we should turn up the heat?", said the Commissioner. But "it is not a question of abandoning rules and discipline", he said immediately, contextualising his remark. However, he said, the question of the relevance of the rules in the Stability and Growth Pact is "not a taboo subject", if it is to make them simpler and promote differential treatment, but without falling into "irresponsibility".
On Wednesday, French President Emmanuel Macron said that the maximum threshold of 3% of GDP for the public deficit was a "debate from another century". "We need more expansionism, more investment. Europe cannot be the only area that does not do so", he told The Economist.
The European Commission will present its recommendations on the draft budgets of the euro area countries for 2020 on Wednesday 20 November.
Italy. "We had no intention of rejecting the [Italian] draft budget", Mr Moscovici said, describing the draft as "serious". The situation is "not comparable" to the confrontation at the end of 2018 between the Commission and the previous Italian government on the 2019 budget, he added.
At the same time, he asked the Italian authorities "not ease up the pressure" on budgetary discipline and took issue with the "double standards" that were applied by the Commission to the treatment of the Italian budgetary situation depending on the nature of the government in power (see EUROPE 12123/1, 12163/1).
At the end of October, the Commission limited itself to asking five Member States, including France and Italy, for explanations on their draft Finance Law (see EUROPE 12354/19).
Greece. According to the Commission, in 2019, Athens is expected to record a primary budget surplus (excluding debt servicing) of 3.8% of GDP against a target of 3.5% each year until 2022 (see EUROPE 12323/11).
Is Mr Mitsotakis' government in a position to renegotiate this obligation imposed on the finalisation of the third Greek rescue plan? Refusing to go forward, the Commissioner considered that the best way to create trust was to first respect the agreed commitments. This issue should be on the agenda of the Eurogroup meeting in December.
See the Commission's autumn economic forecasts: https://bit.ly/32nbwtr (Original version in French by Mathieu Bion)