Despite a slight downward revision to its growth forecasts compared with this spring (see EUROPE 13410/4), the European Commission remains convinced that the economies of the euro area and the European Union will rebound in 2025, driven in particular by consumption and investment.
“The European economy is slowly recovering. As inflation continues to ease and private consumption and investment growth pick up, with unemployment at record lows, growth is set to gradually accelerate over the next two years”, declared the European Commissioner for Economic Affairs, Paolo Gentiloni, on Friday 15 November.
The EU institution therefore forecasts that, after GDP growth of 0.8% in 2024, wealth creation in the euro area will reach 1.3% this year and 1.6% in 2026 (on an unchanged policy basis). At EU level, growth should reach 0.9% of GDP this year, before rebounding to 1.5% in 2025 and 1.8% in 2026.
There will continue to be significant differences between Member States. In 2025, GDP growth will be strongest in Malta (4.3%), Ireland (4.0%), Poland (3.6%) and Croatia (3.3%). It is expected to be weak in Germany (0.7%), France (0.8%), Austria, Italy and Latvia (1.0% each).
According to Mr Gentiloni, the economic environment remains “highly uncertain, with risks largely tilted to the downside”, such as the current geopolitical risks (war in Ukraine and the Middle East) plus potential trade tensions resulting from Donald Trump’s return to power in the United States. At a time when transatlantic trade has doubled in the last ten years, “a possible protectionist turn in US trade policy would be extremely harmful to both economies”, he warned.
Although Member States are consolidating their public finances, the Commissioner advocated that EU countries pursue their investment and reform agenda by completing national post-Covid-19 recovery projects by 2026, mobilising private investment and putting in place “new common instruments to finance European public goods”.
Furthermore, among the EU’s strengths, Mr Gentiloni pointed to its resilient labour market, with a historically low unemployment rate of 5.6% in the EU and 6.3% in the euro area in 2024. He estimated that investment, despite a disappointing level this year, and consumption, after two years of moderation, would both strengthen. And the easing of financing conditions, thanks to repeated rate cuts by the ECB, should help the economy to bounce back.
As far as inflation is concerned, the Commission believes that the disinflationary trend will continue and gradually bring price inflation in the euro area down to a level close to the ECB’s remit of 2.0% by 2026.
Deficit. Member States will continue to reduce public deficits, with the definitive abolition of emergency aid granted to deal with the energy crisis caused by Russian aggression in Ukraine. For both the euro area and the EU, the average deficit should fall from 3.0% to 2.8% of GDP between 2024 and 2026. The forecast trajectory is broadly similar for the EU as a whole, with the deficit falling from 3.1% to 2.9% of GDP over the same period.
It should be noted that, according to the Commission, public deficits will exceed the threshold of 3% of GDP in ten countries in 2024 and in nine in 2025. The following countries will still have an excessive deficit in 2024: Romania (7.9%), France (6.2%), Poland and Slovakia (both 5.8%), Hungary (5.4%), Belgium (4.6%), Malta (4.0%), Italy (3.8%), Finland (3.7%) and Austria (3.6%).
However, said Mr Gentiloni, “the contractionary impact of national fiscal policies on economic activity is expected to be offset in 2025 by the accelerating rollout of EU funds”, including those allocated to post-Covid-19 recovery plans.
Public debt. As for public debt, the trend is back upwards due to persistently high primary public deficits and an increase in debt servicing, both of which have not been offset by GDP growth.
According to the Commission, average public debt would rise from 88.9% to 90.0% between 2023 and 2026 in the euro area, and from 82.1% to 83.4% of GDP at EU level over the same period.
Here again, national situations vary widely. Public debt will remain very high in Greece (153.1% of GDP in 2024, 146.8% in 2025), Italy (136.6% of GDP in 2024, 138.2% in 2025), France (112.7% of GDP in 2024, 115.3% in 2025), Belgium (103.4% of GDP in 2024, 105.1% in 2025) and Spain (102.3% of GDP in 2024, 101.3% in 2025).
By contrast, public debt is low in Estonia (23.2% of GDP in 2024, 24.2% in 2025), Bulgaria (24.5% of GDP in 2024, 23.1% in 2025), Luxembourg (27.5% of GDP in 2024, 27.6% in 2025) and Denmark (31.0% of GDP in 2024, 29.3% in 2025).
On Tuesday 26 November, the Commission will present its analysis of the Member States’ multiannual budget programmes and its recommendations to the EU Council.
See the autumn economic forecasts from the EU institution: https://aeur.eu/f/ec1 (Original version in French by Mathieu Bion)