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Next year all Member States will have moved into positive territory as regards economic growth, with two exceptions. At the same time, the picture will remain varied, ranging from the negative growth in Cyprus and Slovenia to the broad majority of Member States for which solid and for some even strong growth is projected, to the already now rapidly growing Baltic states, where growth rates are projected to be 3-4 per cent of GDP.
Germany and Austria have subdued growth this year due to a slow beginning, but are accelerating quite solidly next year. Unemployment is low, and in 2014 and 2015 domestic demand is expected to be the main growth driver in both countries.
In France and Belgium, growth will remain weak this year, as investment has been falling, and domestic demand will only gradually lift the growth rate next year. In both countries, unemployment does unfortunately not fall much, also as growth in the labour force is not being absorbed to the labour market.
The Netherlands and Finland are expected to contract this year, though less than in 2012. Next year will bring a muted acceleration in economic activity. Domestic demand remains weak, in the Netherlands due to the adjustment in the housing market, and in Finland, due to the on-going structural change in the industrial sector.
The economies of Italy and Spain will contract this year in annual terms. But for Spain, growth is expected to have returned in the third quarter, and for Italy this is expected in the fourth quarter. In both countries, large needs of adjustment still remain, which in Spain is visible in the unbearably high unemployment rate, though this seems to have been stabilising recently. In particular for Spain, exports have become the growth driver, and both countries have moved their current account into surplus.
Ireland is an early adjuster after the beginning of the financial crisis, and the country has been recording growth above the EU average since 2011 and is expected to continue so going forward. Unemployment has been declining at a steady pace and is expected to continue this encouraging trend. Ireland will exit its economic adjustment programme in December.
Portugal has returned to positive growth in the second quarter of this year, and like in Ireland, exports play an important role in this process. However, while growth is gradually picking up next year, it will only be with a lag until this is reflected in a high rate of employment.
The economy of Greece will still contract this year, but there has been a strong revival of tourism, with positive implications for growth. Led by exports, including tourism, and investment, growth is expected to return in 2014. This is predicated on the full implementation of the programme.
The UK will contribute to growth in Europe with above-average rates as private consumption is strengthening on the back of employment growth. Investment is also expected to rebound from next year on.
Sweden as well is on the path for a domestic demand driven recovery with falling unemployment.
Poland has recorded above average growth throughout the crisis and will continue so on the back of rising private consumption. In Hungary, growth is set to rebound this year. In both countries, the labour market is broadly stagnating over the forecast period.
Estonia, which adopted the euro two years ago, is forecast to grow above average with 3 per cent next year and almost 4 per cent in 2015 and unemployment is on a firmly declining trend. Finally, Latvia is recording very solid growth of 4 per cent annually over the forecast horizon, with unemployment falling rapidly, after the rapid and difficult adjustment under the programme until 2012.
In short, we are seeing clear signs of an economic turnaround, but growth will pick up only gradually and will translate into jobs only with a lag. That's why we cannot yet declare victory, and we must not fall into the trap of complacency. Further decisive action to boost sustainable growth and job creation will continue to be necessary in Europe.
Link to individual country forecasts (see also relevant sections of our website)