Commission Cuts its Euro Zone Growth Forecasts

Written by | Wednesday, November 5th, 2014

The European Union cut its growth forecasts for the euro area yesterday (4 November) when it warned that mainly Italy and France remain major problems for the already poor economic performance on the continent. The sluggish EU economy is slowly becoming a global concern again as the threat of recession and deflation combined with high joblessness across the euro zone dominated the latest economic forecasts by the European Commission. The Commission cut its 2014 growth prediction for the 18-country euro area to just 0.8 percent from the previous 1.2 percent. In 2015, expansion should follow, according to the Commission, with 1.1 percent in 2015 and 1.7 percent in 2016.

EU officials called for quick investments to kick off job creation and growth as the fear that the euro zone could again undermine the global economy looms large. “The economic and employment situation is not improving fast enough,” commented Jyrki Katainen, the Commission’s new vice president for jobs and growth. According to Pierre Moscovici, the new commissioner for economic affairs, the EU must work very hard to bring in investment and structural reforms at the same time. Yet, “there is no magic bullet, there is no simple answer,” he added.

The main worries remain the possibility of deflation and unemployment. The former still drags on growth while the latter is believed to persist even after the euro zone economy starts growing again. The Commission forecasts that unemployment rate will stay around 10.2 percent in 2016 on average and approximately 22 percent for Spain and Greece. Germany, the backbone of the European economy, is also facing sluggish times – the Commission estimates it will grow by only 1.1 percent next year. Analysts agree with the Commission’s call for investment but also suggest that the necessary kick to the economy should be achieved by a fiscal stimulus rather than austerity.

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