GDP growth will continue at a moderate rate of 1.2% in the euro area and 1.4% in the European Union of 27 Member States, both in 2020 and 2021, according to the winter economic forecasts presented by the European Commission on Thursday 13 February.
The European economy is showing “resilience” to external factors, such as international trade tensions and the outbreak of the new coronavirus, and moderate growth will continue to be driven by internal “consumption”, said Economics Commissioner Paolo Gentiloni, for whom the economic situation has “broadly remained unchanged” since last autumn.
Compared to November 2019 (see EUROPE 12365/2), the European institution has revised its growth forecasts for 2019 very slightly upwards, from 1.1% to 1.2% of GDP for the euro area and from 1.4% to 1.5% of GDP for the EU.
Coronavirus Nevertheless, the Commission remains of the view that the downside risks outweigh the upsides. While trade tensions between the US and China and between the UK and the EU appear to be easing in the short term, the coronavirus (COVID-19) outbreak, on the agenda of a ‘Health’ Council meeting on Thursday (see EUROPE 12425/1), adds new uncertainty that the EC is not in a position to quantify in terms of negative impact on the economy at this stage.
“The longer its lasts, the higher the knock-on effects on economic conditions”, Mr Gentiloni said. He found it difficult to compare the impact of the 2003 SARS outbreak as the weight of the Chinese economy in the world economy had increased over the period from “4.5% to 17.7%” and the Chinese accounted for “18%” of total travel expenditure, the Commissioner noted.
On Thursday, the French Finance Minister, Bruno Le Maire, quantified the impact of the coronavirus at a drop in GDP for this year of 0.2% globally and 0.1% in France.
Economic situations remain very different from one country to another. In 2020, growth is expected to be highest in Malta (4.0% in 2020, 4.5% in 2019), Romania (3.8% in 2020, 3.9% in 2019), Ireland (3.6% in 2020, 5.7% in 2019). It will be steady in Spain (1.6% in 2020, 2.0% in 2019), moderate in Germany (1.1% in 2020, 0.6% in 2019) and France (1.1% in 2020, 1.2% in 2019) and flat in Italy (0.3% in 2020, 0.2% in 2019). As for the United Kingdom, growth is expected to be similar to that of the euro area (1.2% in 2020, 1.3% in 2019).
Mr Gentiloni noted that “strikes” in France linked to pension reform and the ‘yellow vest’ protest movement had a large impact on growth. He welcomed the fact that wealth generation in Spain continues at a still high level, while the Spanish authorities have yet to submit a revised draft budget plan for 2020. He called on Italy, like all Member States, to stimulate productive investment. As for Belgium, where growth remains moderate (1.2% in 2020, 1.4% in 2019), he hoped that a federal government with full powers would be in place as soon as possible to discuss the future.
Greece Returning from Athens, the Commissioner praised the renewed health of the Greek economy, which is expected to grow steadily (2.4% in 2020, 2.2% in 2019), although the government still has “serious problems” to solve in the coming years.
While interest rates on 10-year Greek securities have fallen to a historically low level of less than 1%, Mr Gentiloni estimated that in “June”, Greece should be allowed by the Eurogroup to reuse nearly €650 million of central bank profits from the sovereign debt crisis made by central banks under the ECB’s SMP/ANFA operations (see EUROPE 12400/15) to stimulate investment and not debt servicing.
The Commissioner had already called for an easing of the primary budget surplus (excluding debt servicing) set at 3.5% of GDP until 2022 for Greece when it exited its 3rd rescue package.
Finally, the Commission forecasts inflation at 1.3% in 2020 and 1.4% in 2021 in the euro area and 1.7% and 2.0% in 2020 in the EU.
See the Commission’s winter economic forecasts: http://bit.ly/2w7kT62 (Original version in French by Mathieu Bion)