European Commission Releases Economic Forecast

For the first time since 2008, the economies of all European Union member states are expected to grow throughout an entire forecasting period, in this case from 2016 to 2018. Even those members who suffered the most during the recession were expected to have returned to growth last year, according to the European Commission’s Winter 2017 Economic Forecast. Higher-than-usual uncertainty dogs the outlook, however.

“The European economy has proven resilient to the numerous shocks it has experienced over the past year,” said Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs. “Growth is holding up and unemployment and deficits are heading lower. Yet with uncertainty at such high levels, it’s more important than ever that we use all policy tools to support growth. Above all, we must ensure that its benefits are felt in all parts of the euro area and all segments of society.”

The eurozone has experienced real GDP growth for 15 consecutive quarters. Employment is growing at a robust pace and unemployment continues a downward trend. The driver of recovery is still considered to be private consumption while investment growth remains subdued. The commission expects GDP growth in the eurozone of 1.6% in 2017 and 1.8% in 2018, an upward revision from the Autumn Forecast due to better-than-expected performance in the second half of 2016. Risks loom large, however, and mostly on the downside.

“In these uncertain times … it is important that European economies stay competitive and able to adapt to changing circumstances,” said Valdis Dombrovskis, vice president for the Euro and Social Dialogue. “This requires continued structural reform effort. We also need to focus on inclusive growth, ensuring that the recovery is felt by all. With inflation picking up from low levels, we cannot expect current monetary stimulus to last forever.”

With the recent increase in energy prices, inflation has picked up too and is expected to reach higher levels this year and next. Core inflation, however, is set to rise only gradually. Growth rates among member states may be affected by the U.S. dollar’s appreciation and higher long-term interest rates.
The high uncertainty in the forecast is attributable to the still-unknown policies of the new U.S. administration, as well as the upcoming elections in Europe and the “Article 50” negotiations with the U.K.

Fiscal stimulus in the United States could have a greater impact on growth than expected, in the short term; in the medium term, recent crises loom large as risks to the growth forecast, as do the U.K.’s vote to leave the European Union, potential trade disruptions and monetary tightening in the U.S.

– Adam Fusco, editorial associate

No comments:

Post a Comment