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Printed: 10.05.2024.
PrintEU economic policy: winter-2016 outlook
The Commission’s forecast
takes into consideration all relevant available data and factors, including
assumptions about government policies, up until and including 22 January 2016.
Only policies credibly announced and specified in adequate detail are
incorporated. Projections assume no policy changes.
This forecast is based on a set of external assumptions concerning exchange rates, interest rates and commodity prices. The numbers used reflect market expectations derived from derivatives markets at the time of the forecast. The Commission is due to update its economic forecast in May 2016.
There are some factors that support growth; they are expected to be stronger and last longer than previously assumed. They include low oil prices, favourable financing conditions and the euro's low exchange rate. At the same time, risks to the economy are becoming more pronounced and new challenges are surfacing: slower growth in China and other emerging market economies, weak global trade as well as geopolitical and policy-related uncertainty.
Commission’s opinion
Voices from the
Commission on new forecast are quite positive: for example, V. Dombrovskis,
Commission Vice-President responsible for euro-zone and social dialogue
underlined that the EU “is continuing recovery, with growth broadly in line with previous
forecast in autumn”. However, he said that “Europe’s moderate growth was facing
increasing headwinds, from slower growth in emerging markets such as
China, to weak global trade and geopolitical tensions in
Europe's neighbourhood”. His recipe is clear: to continue structural reforms in
order to support economic growth and improve job opportunities.
A “regular”
Commissioner, Pierre Moscovici, responsible for EU economic and financial affairs has been
optimistic too: “the European economy is successfully weathering new challenges this winter,
supported by cheap oil, the euro rate and low interest rates”, he added.
Nonetheless, he argued, weaker
global environment posed some risks, which meant that the EU “must be doubly
vigilant”.
To P. Moscovici opinion, there is still “more work to do to strengthen investment, enhance competitiveness in a smart way and complete the job of fixing public finances."
References from http://europa.eu/rapid/press-release_IP-16-214_en.htm
Towards broad-based recovery across EU states
In 2015, economic
output either increased or was stable in every EU state. By 2017, the economies
of EU-28 states are expected to be expanding.
GDP growth rates will, however, continue to differ substantially due to both structural features and different cyclical positions.
Private
consumption is expected to remain the main driver of growth in 2016-17,
supported by an improving labour market and growing real disposable incomes.
Investment should also gradually benefit from increasing demand, improved profit margins, favourable financing conditions and gradually lower pressure to deleverage.
Labour market conditions continue to improve
According to
forecast, employment should continue to rise modestly. Unemployment rates are
set to continue falling, albeit at a slower pace than last year.
The decline should
be more pronounced in those EU states where labour market reforms have been
implemented.
The unemployment rate in the euro area is expected to fall from 11% in 2015 to 10.5% in 2016 and 10.2% in 2017. In the EU unemployment should fall from 9.5% in 2015 to 9.0% this year and 8.7% next.
More supportive fiscal policies
The aggregate general government deficit in the euro area is expected to decline further thanks to stronger economic activity and, to a lesser extent, lower interest expenditure.
In the euro area,
the general government deficit is expected to have fallen to 2.2% of GDP in
2015 (EU 2.5%) and should fall further to 1.9% of GDP this year (EU 2.2%) and
1.6% of GDP in 2017 (EU 1.8%).
The fiscal stance
of the euro area is expected to become slightly more supportive to the economic
recovery this year; in the EU, it is set to remain broadly neutral.
The debt-to-GDP ratio of the euro area is forecast to decline from its peak of 94.5% in 2014 (EU 88.6%) to 91.3% in 2017 (EU 85.7%).
Further decline in oil prices temporarily drives down inflation
Annual inflation
in the euro area was only slightly above zero towards the end of 2015, mainly
due to a further drop in oil prices.
Consumer price
increases in the euro area are expected to remain very low in the first half of
the year and should start picking up in the second half when the impact from
the sharp fall in oil prices abates.
For 2016 as a whole, the euro area annual inflation is now forecast at only 0.5%, partly because wage growth remains subdued. Inflation is expected to pick up gradually and to reach 1.5% in 2017 as higher wages, higher domestic demand and a moderate pick-up in oil prices increase price pressures.
Exports: slowdown in global growth
Given the
deterioration of the global economic outlook, the recovery of the global
economy (excluding the EU) is now forecast to be slower than expected in the
autumn.
In fact global
growth in 2015 is set to have been at its weakest since 2009.
Euro area export growth should accelerate over the course of 2016 following a moderation in the second half of 2015. This is due to lagging effects from the euro’s past depreciation, lower unit labour costs, and a gradual increase in foreign demand.
Outlook is subject to increased risks
The economic
outlook remains highly uncertain and overall risks are increasing. These
include lower growth in emerging markets, a disorderly adjustment in China, and
the possibility that further interest rate rises in the United States could
cause disruption in financial markets or hurt vulnerable emerging economies and
weigh on the outlook.
A further fall in oil prices could also have a negative effect on oil-exporting countries and lower demand for EU exports. Risks from within the EU could also have an impact on confidence and investment. On the other hand, the combination of current supportive factors could translate into greater momentum than anticipated, especially if investment were to rebound.
More information on the forecast:
= Winter Economic Forecast - Website and #ecforecast;
= European Economic Forecast – explanatory website
= Main reference: Winter 2016 Economic Forecast: Weathering new challenges, Brussels, 4 February 2016. In: http://europa.eu/rapid/press-release_IP-16-214_en.htm.