EU sees steady, modest eurozone growth

BRUSSELS - Agence France-Presse

European Commission Vice-President Siim Kallas presents the EU executive's spring economic forecast during a news conference in Brussels May 5, 2014. REUTERS Photo

The European Commission tweaked its 2014 and 2015 economic forecasts Monday but left intact the overall outlook for gradual recovery from a record recession.
      
The Commission stressed again the need for all member states to stick to the reforms and measures agreed to tackle the global slump and ensuing debt crisis, saying this was vital for continued growth.
      
The 18-nation eurozone economy will grow by 1.2 percent this year, as previously estimated, it said, while cutting its 2015 forecast to 1.7 percent from 1.8 percent.
      
The full 28-member European Union economy will expand 1.6 percent in 2014, up from the previous estimate of 1.5 percent, and grow 2.0 percent in 2015, unchanged from the earlier forecast.
      
The estimates rest "on the assumption that the agreed policy measures will be implemented ... taking forward" steps to stabilise the public finances and open up the economy, the Commission said.
      
"The recovery has now taken hold. Deficits have declined, investment is rebounding and, importantly, the employment situation has started improving," acting Economic Affairs Commissioner Siim Kallas said in a statement.
      
"Continued reform efforts ... are paying off," Kallas said.
     
Among member state economies, the Commission forecast Germany to expand 1.8 percent and 2.0 percent respectively this year and next, unchanged from its February estimates, while France was seen lagging behind, on 1.0 percent and 1.5 percent, compared with February's estimates of 1.0 percent and 1.7 percent.       
 
Italy will expand 0.6 percent and 1.2 percent, unchanged, while Spain will gain 1.1 percent and 2.1 percent, much better than the previous 1.0 percent and 1.7 percent.        

Non-euro Britain easily outpaces its eurozone partners with growth of 2.7 percent and 2.5 percent, revised up from 2.5 percent and 2.4 percent.
      
The US economy in comparison is expected to grow 2.8 percent this year and 3.2 percent in 2015.
                      
With the eurozone economy just moving along, inflation will continue at a low level -- at 0.8 percent in 2014 and 1.2 percent in 2015, well short of the European Central Bank's target of just under 2.0 percent, and down from the previous forecast made in February for 1.0 percent and 1.3 percent, respectively.
     
Recent low inflation rates have sparked concerns the eurozone faces the threat of deflation -- when prices fall in absolute terms, undercutting demand and jobs to put the wider economy at risk.         "While current price developments reflect both external factors and the ongoing adjustment process, a too prolonged period of low inflation could also entail risks," the Commission said.
      
"However, the gradually strengthening and increasingly broad-based recovery should mitigate these risks," it added.
      
Kallas told a press conference that "very low inflation rates in some member states ... reflect the adjustment process of restoring competitiveness."        

The Commission estimated that public deficits -- the shortfall between government spending and revenues -- should continue to improve, to an average of about 2.5 percent of gross domestic product this year, well below the EU 3.0-percent limit.        

Deficit levels vary widely, however, with Germany, the EU's economic powerhouse, expected to balance its public finances this year and next.
      
In marked contrast, second-ranked France, which has promised to hit the 3.0 percent limit next year, will overshoot at 3.4 percent in 2015, the Commission said, down from 3.9 percent this year.        

The Commission put Italy at 2.6 percent and 2.2 percent and Spain on 5.6 percent and 6.1 percent.        
Twice-bailed out Greece is set to run a public deficit of 1.6 percent and 1.0 percent in 2014 and 2015, the Commission said, with Ireland on 4.8 percent and 4.2 percent, alongside Portugal on 4.0 percent and 2.5 percent.  
     
The Commission said it expected the eurozone unemployment rate -- currently falling but still near record highs at 11.8 percent -- to improve to 11.4 percent next year.        

"Overall, domestic demand is expected to become the key driver of growth ... (while) the contribution of net exports is expected to diminish over the forecast horizon," it said.
      
"The largest downside risk to the growth outlook remains a renewed loss of confidence from a stalling of reforms. Also, uncertainty about the external environment has increased," the Commission said.
      
"On the other hand, further bold structural reforms could lead to a stronger-than-envisaged recovery."