The economic recovery in the euro area and the
European Union as a whole is now in its third year. It should continue
at a modest pace next year despite more challenging conditions in the
global economy.
Against a backdrop of declining oil prices, accommodative monetary
policy and a relatively weak external value of the euro, the economic
recovery this year has been resilient and widespread across Member
States. It has, however, remained slow.
The impact of the positive
factors is fading, while new challenges are appearing, such as the
slowdown in emerging market economies and global trade, and persisting
geopolitical tensions. Backed by other factors, such as better
employment performance supporting real disposable income, easier credit
conditions, progress in financial deleveraging and higher investment,
the pace of growth is expected to resist the challenges in 2016 and
2017. In some countries, the positive impact of structural reforms will
also contribute to supporting growth further.
Overall, euro area
real GDP is forecast to grow by 1.6% in 2015, rising to 1.8% in 2016 and
1.9% in 2017. For the EU as a whole, real GDP is expected to rise from
1.9% this year to 2.0% in 2016 and 2.1% in 2017.
Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, said: Today's
economic forecast shows the euro area economy continuing its moderate
recovery. Growth is largely backed by temporary factors such as low oil
prices, a weaker euro exchange rate and the ECB's accommodative monetary
policy. The euro area has shown resilience to external developments,
such as the slowdown in world trade, and this is encouraging. Sustaining
and strengthening the recovery requires taking advantage of these
temporary tailwinds to pursue responsible public finances, boost
investment and carry out structural reforms to enhance competitiveness.
This is important, particularly against the backdrop of a slowing global
economy, continuing tensions in our neighbourhood and the need to
manage the refugee crisis decisively and collectively."
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said:“The
European economy remains on recovery course. Looking to 2016, we see
growth rising and unemployment and fiscal deficits falling. Yet the
improvements are still unevenly spread: particularly in the euro area,
convergence is not happening fast enough. Major challenges remain:
insufficient investment, economic structures that hold back jobs and
growth, and persistently high levels of private and public debt. These
require bold and determined policy responses in 2016, especially in the
face of an uncertain global outlook.”
The recovery is widespread across Member States
Domestic
demand is strengthening in most euro area Member States this year and
economic activity should rise across the EU in 2016 and 2017. Private
consumption is growing as a result of rising nominal incomes and low
inflation. Investment is also expected to strengthen somewhat on the
back of rising disposable incomes for households, improving profit
margins of corporations, favourable financing conditions and a brighter
demand outlook.
Past reforms support stronger labour market performance...
The
labour market continues to strengthen at a slow and uneven pace across
Member States. However, hard-hit countries that have implemented labour
market reforms should see further gains in employment growth. In the
euro area, employment is expected to grow by 0.9% this year and next,
and to pick up to 1% in 2017. In the EU, employment is set to increase
by 1.0% this year and 0.9% in 2016 and 2017. Overall, unemployment is
expected to continue to decline only gradually, with substantial
disparities between Member States. In the euro area, it is forecast to
fall to 10.6% next year and 10.3% in 2017 from 11.0% this year, while in
the EU as a whole, the forecast shows a fall from 9.5% this year to
9.2% and 8.9% in 2016 and 2017 respectively.
The fiscal outlook continues to improve
In
2015, the aggregate deficit-to-GDP ratio of the euro area is expected
to fall to 2.0%, thanks to past fiscal consolidation efforts, the
cyclical strengthening of economic activity and, to a lesser extent,
lower interest expenditure. By 2017, the deficit-to-GDP ratio of the
euro area should fall to 1.5%. The fiscal stance of the euro area is
expected to remain broadly neutral. The euro area’s debt-to-GDP ratio is
forecast to fall from its peak of 94.5% in 2014 to reach 91.3% in 2017.
The deficit-to-GDP ratio for the EU as a whole is forecast to decline
to 1.6% in 2017 from a forecast 2.5% this year, while its debt-to-GDP
ratio is expected to fall to 85.8% in 2017 from 87.8% expected this
year.
Lower oil prices temporarily drive inflation lower
The
steep fall in oil and other commodity prices drove headline inflation
in the euro area and the EU into negative territory in September.
However, this masks the fact that wage growth, strengthening private
consumption and the narrowing of the output gap are beginning to add
increasing pressure to prices. Annual inflation is expected to rise from
0.1% in the euro area and 0% in the EU this year, to 1.0% and 1.1%
respectively next year, and to 1.6% in both areas in 2017.
Slowdown in the global economy hampers demand for EU exports
The
outlook for global growth and world trade has deteriorated considerably
since the spring, due to the downturn in emerging market economies,
particularly China. Emerging market economies are expected to reach
their trough this year and to start recovering in 2016.
So far,
euro area exports have largely been spared from the deterioration in
global trade, mainly thanks to the euro’s past depreciation. However,
export growth is expected to slow down in 2016 before rising slightly in
2017.
Current account surplus increases
The
current account surplus of the euro area should increase this year, due
to the lower oil trade deficit and improving terms of trade, but also
the maintenance of high surpluses in certain Member States and the
correction of past deficits in others. The current account surplus is
expected to narrow slightly in 2017 as oil prices rebound and the terms
of trade deteriorate.
Arrival of asylum seekers could have small, positive economic impact
This
forecast provides a first assessment of the economic impact of the
arrival of large numbers of asylum seekers in the EU. While in the short
run, additional public expenditure increases GDP, an additional
positive impact on growth is expected in the medium term from the
increase in labour supply, provided the right policies are in place to
facilitate access to the labour market. For the EU as a whole, the
growth impact is small, but it can be more sizeable in some Member
States.
Risks to the forecast are mainly external and mostly negative
Risks
related to the global economic outlook have increased. Lower growth in
emerging markets, in particular a more disruptive adjustment in China,
and the effects of expected normalisation of US monetary policy on
emerging markets, could have a more negative impact on investment and
economic activity in Europe than currently expected.
Background
This
forecast takes into consideration all relevant available data and
factors, including assumptions about government policies, up until 22
October 2015. Only policies credibly announced and specified in adequate
detail are incorporated and projections assume no policy changes.
This
forecast is also 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 February 2016.