05 February 2015

European Commission: Winter Economic Forecast - outlook improved but risks remain

Over the course of this year, economic activity is expected to pick up moderately in the EU and in the euro area, before accelerating further in 2016. Growth this year is forecast to rise to 1.7% for the EU as a whole and to 1.3% for the euro area. In 2016, annual growth should reach 2.1% and 1.9% respectively, on the back of strengthened domestic and foreign demand, very accommodative monetary policy and a broadly neutral fiscal stance.

Growth prospects across Europe are still limited by a weak investment environment and high unemployment. However, since the autumn, a number of key developments have brightened the near-term outlook. Oil prices have declined faster than before, the euro has depreciated noticeably, the ECB has announced quantitative easing, and the European Commission has presented its Investment Plan for Europe. All these factors are set to have a positive impact on growth.

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, said: "Today Europe stands at a critical juncture. The right economic conditions are in place for sustained growth and job creation. Following the difficult policy choices governments have made due to the crisis, the effects of reforms are emerging. We have to step up the reform momentum to strengthen the recovery and make sure it translates into money in people's pockets. The Commission is delivering on its commitments on three main fronts: investment, structural reforms and fiscal responsibility. Implementation now lies with the Member States. And that is where our results will be judged."

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "Europe's economic outlook is a little brighter today than when we presented our last forecasts. The fall in oil prices and the cheaper euro are providing a welcome shot in the arm for the EU economy. Meanwhile, the Investment Plan for Europe and the ECB’s important recent decisions will help create a more supportive backdrop for reforms and smart fiscal policies. But there is still much hard work ahead to deliver the jobs that remain elusive for millions of Europeans.”

Economic growth broad-based

While all Member States are expected to have positive growth rates this year and the recovery has continued to broaden in recent quarters, the divergence in economic performance across the EU is likely to continue. This is in part because the progress with deleveraging among banks, the public and private sectors still differs across Member States. The positive effect of low oil prices on growth will also vary according to each country's energy mix. The accommodative monetary conditions might have a stronger positive impact in countries where financing conditions are tight. The support to exports from the euro's depreciation will depend on national trade orientation and patterns of specialisation. All in all, in 2015, the range of Member States' growth rates is expected to remain broad, from 0.2% (Croatia) to 3.5% (Ireland).

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