EU’s Winter 2016 Economic Forecast: Facing New Challenges

Written by | Monday, February 8th, 2016

The European economy is entering its fourth year of recovery with a moderate economic growth mostly driven by consumption. The Commission’s latest economic forecast reveals that the risks to European growth are increasing as the world economy is facing major challenges, such as slower growth in China and other emerging markets, weak global trade and increasing geopolitical uncertainty.

In the Eurozone, growth is projected to go up to 1.7 percent this year from 1.6 percent last year, and to eventually increase to 1.9 percent in 2017 and to 2.0 percent in 2018. Last year, economic output either increased or was stable in every Member State and by 2017, the economies of all EU countries are expected to be expanding. GDP growth rates will, however, continue to vary from country to country due to structural factors and different cyclical positions. In 2017 and 2018, private consumption is expected to remain the main driver of growth supported by improving labour market conditions, growing real disposable incomes, more supportive fiscal position and further decline in oil prices that will temporarily help drive inflation down.

When it comes to employment, it is expected to continue growing modestly. The decline in unemployment should be more pronounced in those EU Member States that have implemented labor market reforms. In 2016, the Eurozone’s unemployment rate is expected to be 10.5 percent and 10.2 percent a year later. As to fiscal conditions, the Eurozone’s general government deficit is expected to have fallen to 2.2 percent of GDP in 2015 and should further go down to 1.9 percent of GDP this year and 1.6 percent of GDP in 2017.

At the end of last year, annual inflation in the euro area was slightly above zero mainly due to the continuous fall in oil prices. For this year as a whole, Eurozone’s annual inflation is now projected to be at 0.5 percent, partly because wage growth is still subdued. Inflation is expected to rise gradually to reach 1.5 percent in 2017 as higher wages, higher domestic demand and a slight pick-up in oil prices increase price pressures.

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