Economic growth in Europe is expected to remain modest as key trading partners’ performance has slowed and some of the so far supportive factors start to wane. As a result, GDP in the euro area is forecast to continue growing at modest rates over the 2015-2017 period.
According to its spring forecast, the European Commission expects euro area GDP of 1.6% in 2016 and 1.8% in 2017 after 1.7% in 2015 (Winter forecast: 2015: 1.6%, 2016: 1.7%, 2017: 1.9%). GDP growth in the EU is expected to moderate from 2.0% last year to 1.8% in 2016 before reaching 1.9% in 2017 (Winter forecast: 2015: 1.9%, 2016: 1.9%, 2017: 2.0%).
Very accommodative monetary policy has set the scene for a pick-up in investment by making access to funding easier and cheaper, the Commission said. Fiscal policy in the euro area is expected to be supportive of growth this year. But although oil prices fell again in early 2016 and prolonged the boost to real disposable incomes, the strength of this support should gradually fade as the oil price rebounds.
Similarly, although euro area exports are still benefiting somewhat from the euro’s past depreciation, the currency’s recent rise could make the euro area more susceptible to the effects of slower external growth.
“The economic recovery in Europe continues but the global context is less conducive than it was. Future growth will increasingly depend on the opportunities we create for ourselves,” said Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue.
“That means stepping up our structural reform efforts to address long-standing problems in many countries – high levels of public and private debt, vulnerabilities in the financial sector or declining competitiveness. A decisive policy action to reform and modernise our economies is the only way to ensure strong and sustainable growth, more jobs and good social conditions for our people.”
“Growth in Europe is holding up despite a more difficult global environment. There are signs that policy efforts are gradually delivering more jobs and supporting investment,” added Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs.
“But we have much more to do to tackle inequality. The recovery in the euro area remains uneven, both between Member States and between the weakest and the strongest in society. That is unacceptable and requires determined action from governments, both individually and collectively.”
Economic growth is set to rise or remain broadly stable in most Member States over the forecast horizon. The economies of all Member States are expected to expand next year, but growth is still expected to remain uneven across the EU.
Euro area net exports are expected to remain a drag on growth in 2016 before turning neutral in 2017. Therefore, growth will depend on domestic demand: investment is expected to pick up next year to 3.8% in both the euro area and the European Union and private consumption is expected to moderate as the expected rebound in inflation will reduce real income growth.
