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Friday, 26.04.2024, 12:19
EU's economic forecast in Autumn 2017: growth in changing policy context
Each year since 2012, the Commission published three
comprehensive forecasts: in winter, spring and autumn. From 2018, the European
Commission will make four "economic reviews" each year: two comprehensive forecasts (spring and
autumn) and two interim forecasts (winter
and summer).
The interim forecasts will cover annual and quarterly GDP
and inflation for the current and following years for all EU states and the
euro-zone countries, as well as the EU's aggregates.
Thus, Commission's forecast will be in line with those of
other economic institutions, e.g. the European Central Bank, International
Monetary Fund and Organisation for Economic Co-operation and Development.
The present Autumn forecast is based on a set of technical
assumptions concerning exchange rates, interest rates and commodity prices with
a final date of 23 October 2017. All other incoming data, including assumptions
about government policies, are dated by the October 2017 too.
Acomplishments: Commission's opinion
The Commission's forecast shows that euro area economy is on
track to grow at its fastest pace in a decade this year, with real GDP growth
at 2.2%. This is substantially higher than was expected in spring (1.7%). The
EU economy as a whole is also set to beat expectations with robust growth of
2.3% this year (up from 1.9% in spring).
According to Autumn forecast, the European Commission
expects growth to continue in both the euro area and in the EU at 2.1% in 2018
and at 1.9% in 2019 (Spring Forecast: 2018: 1.8% in the euro area, 1.9% in the
EU).
Commission Vice-President for the Euro and Social Dialogue,
also in charge of Financial Stability, Financial Services and Capital Markets
Union, Valdis Dombrovskis underlined
that "economic growth and job creation were robust, investment was picking
up and government deficit and debt were gradually decreasing".
There are however, he stresssed, some significant
differences among EU states, with some of them still experiencing significant
deficiences in the labour market.
The EU economic policies, he argued, would remain focused on
making growth sustainable and inclusive. EU's economic guideline is towards
"stability-oriented macroeconomic policies and reforms to boost
productivity, adaptability to change and to ensure that the benefits of growth
are spread widely across the states".
Commissioner for Economic and Financial Affairs, Taxation
and Customs, Pierre Moscovici said
that after five years of moderate recovery, European growth has now
accelerated, more jobs being created, with rising investment and strengthening
public finances.
However, he added, "challenges remain in the form of
high debt levels and subdued wage increases". Hence, determined efforts
are needed by the EU states to ensure that growth will last and that structural
convergence and the strengthening of the euro area are necessary factors in
being resilient to future shocks and making it "a true motor of shared
prosperity".
Growth surpassed expectations
The European economy has performed significantly better than
expected in 2017, propelled by resilient private consumption, stronger growth
around the world, and falling unemployment. Investment is also picking up amid
favourable financing conditions and considerably brightened economic sentiment
as uncertainty has faded. The economies of all EU states are expanding and
their labour markets improving, but wages are rising only slowly.
The Autumn forecast has noted "changing policy
context"; although cyclical recovery has now been underway for 18
uninterrupted quarters, it remains incomplete, with e.g. still significant
slack in the labour market and untypically low wage growth. Therefore, GDP
growth and inflation is still dependent on policy support. The European Central
Bank has kept its monetary policy very accommodative while some other central
banks around the world have started raising interest rates. A number of euro
area states are expected to adopt expansionary fiscal policies in 2018 but the
overall fiscal stance of the euro area is expected to stay broadly neutral.
Below are some extracts from the forecast according to
economic policies:
- Unemployment continues to fall, acknowledged the
Commission's forecast: job creation has been sustained and labour market
conditions are set to benefit from the domestic-demand driven expansion,
moderate wage growth, and structural reforms implemented in some EU states.
Unemployment in the euro area is expected to average 9.1% this year, its lowest
level since 2009, as the total number of people employed climbs to a record
high. Over the next two years, unemployment is set to decrease further to 8.5%
in 2018 and 7.9% in 2019. In the EU, the unemployment rate is projected at 7.8%
this year, 7.3% in 2018 and 7.0% in 2019. Job creation is expected to moderate,
as temporary fiscal incentives fade in some countries and skill shortages
emerge in others.
- In the inflation outlook, the headline consumer price
inflation rate has fluctuated over the first nine months in 2017 under the
influence of energy base effects. Core inflation, which excludes energy and
unprocessed food prices, by contrast, has been rising but remains subdued,
reflecting the impact of a prolonged period of low inflation, weak wage growth
as well as remaining labour market showed quite moderate situation. Overall,
inflation is expected to average 1.5% in the euro area in 2017 and is expected
to dip to 1.4% in 2018 before climbing up to 1.6% in 2019.
- Public finances in the euro area are forecast to improve
more than was expected in the spring, mostly thanks to the pick-up in growth.
The headline government balance is expected to improve in almost all EU states.
Under a no-policy-change assumption, the euro area general government
deficit-to-GDP ratio is expected to fall to 0.8% in 2019 (1.1% in 2017 and 0.9%
in 2018), while the debt-to-GDP ratio is forecast to decline to 85.2% (89.3% in
2017 and 87.2% in 2018).
- The risks that economic developments turning better or
worse than previously forecasted are broadly balanced. The main downside risks
are external, relating to elevated global geopolitical tensions, possibly
tighter global financial conditions, economic adjustments in China or the
extension of protectionist policies. In the EU states, downside risks relate to
the outcome of the Brexit negotiations, a stronger appreciation of the euro,
and higher long-term interest rates. By contrast, diminishing uncertainty and
improving sentiment in the EU could lead to stronger-than-forecast growth, as
could stronger growth in the rest of the world.
Ongoing negotiation on the UK's withdrawal from EU, the
Commission's projections for 2019 are based on a purely technical assumption of
status quo in terms of trading relations between the EU-27 and the UK.
More information:
Full document: Autumn 2017 Economic Forecast;
Press release: Spring 2017 Economic Forecast: steady growth
ahead;
Full document: Spring 2017 Economic
Forecast.
Reference:
http://europa.eu/rapid/press-release_IP-17-4362_en.htm;
Latvian version: http://europa.eu/rapid/press-release_IP-17-4362_lv.htm