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E.U. Predicts Anemic Growth and High Unemployment in 2014 E.U. Predicts Anemic Growth and High Unemployment in 2014
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BRUSSELS — A fragile recovery across the European Union is not expected to bear fruit until next year, while unemployment is likely to remain high in countries like Greece and Spain, and even rise in France, the head of economic policy for the bloc warned Tuesday. BRUSSELS — A fragile recovery across the European Union is not expected to bear fruit until next year. And unemployment is likely to remain high in countries like Greece and Spain, and even rise in France, the Union’s head of economic policy warned Tuesday.
Olli Rehn, the Union’s commissioner for economics and monetary affairs, said economic output this year among the 17 countries that have the euro as their currency was expected to fall 0.4 percent and to flatline in the 28 countries of the European Union, partly because of slowing demand from emerging markets, before turning positive in 2014. Left-leaning lawmakers in the European Parliament immediately branded the autumn economic forecast by Olli Rehn, the European Union’s commissioner for economics and monetary affairs, as evidence that the bloc’s austerity policies were continuing to inflict unnecessary pain on millions of Europeans.
The figures also show rising joblessness in France, which could further erode faith among European leaders, including in Germany, in the ability of President François Hollande to overhaul his economy and steer the second largest economy in the euro zone to a robust recovery. And some analysts warned that the forecasts might even be too optimistic in parts, saying that investors and business were likely to remain jittery about growth in many countries and that Europe could even face a sustained period of deflation — an affliction in which economic demand is so weak that prices actually decline, potentially making government debt reduction all the harder.
The report could increase pressure on the European Central Bank to take action to stimulate the economy when it meets on Thursday. Last week, official figures showed inflation falling to an annual rate of just 0.7 percent, well below the E.C.B.'s official target of about 2 percent.
Mr. Rehn’s forecasts could bolster those members of the E.C.B.'s Governing Council who argue that action is needed to prevent the euro zone from becoming stuck in the same kind of economic stagnation that afflicted Japan for decades.
At a news conference Tuesday, Mr. Rehn said the risk of deflation was remote, but he declined to comment on whether the E.C.B. should lower interest rates.
Mr. Rehn said economic output for all of 2013 among the 17 countries that use the euro currency was expected shrink by 0.4 percent, but would grow by 1.1 percent next year. He also said that the 28 countries of the European Union would have an average of zero growth this year, but were expected to grow by 1.4 percent in 2014.
The forecasts also show rising joblessness in France now estimated at 11 percent and projected to rise next year to 11.2 percent.
That could further erode faith among European leaders in the ability of President François Hollande of France to steer the second-largest economy in the euro zone to a robust recovery.
“The forecasts are particularly damning for France and will significantly increase pressure on Hollande at a time the president is already vulnerable,” said Mujtaba Rahman, the director for Europe of the Eurasia Group. That “will reinforce a growing strand of opinion in Berlin that France is the weakest link, and that political ownership of structural reforms is the missing piece of the puzzle when it comes to broader euro zone stabilization,” Mr. Rahman said.“The forecasts are particularly damning for France and will significantly increase pressure on Hollande at a time the president is already vulnerable,” said Mujtaba Rahman, the director for Europe of the Eurasia Group. That “will reinforce a growing strand of opinion in Berlin that France is the weakest link, and that political ownership of structural reforms is the missing piece of the puzzle when it comes to broader euro zone stabilization,” Mr. Rahman said.
Mr. Rehn’s forecast revised French growth down to 0.9 percent in 2014 from 1.1 percent earlier in the spring, while growth in Spain for 2014 was revised down to 0.5 percent from 0.9 percent. Both countries are also on course to miss their deficit targets. France was heading for a budget deficit of 4.1 percent this year, above its target of 3.9 percent, while Spain was on track for a deficit of 6.8 percent this year compared to its target of 6.5 percent. Mr. Rehn’s forecast revised French growth down to 0.9 percent in 2014 from a forecast of 1.1 percent made back in the spring, while growth in Spain for 2014 was revised down to 0.5 percent from an earlier 0.9 percent projection.
“The needs for economic reforms are of particular urgency and of particularly importance” in France and Spain, Mr. Rehn told a news conference in Brussels to present his so-called autumn economic forecasts. He said that he was “counting on these countries to undertake serious and effective economic reforms to boost competitiveness, growth and employment” after already giving them both an extra two years to meet deficit targets. Both countries are also on course to narrowly miss important interim deficit targets previously agreed to with the European Union, according to the outlook.
Overall, Mr. Rehn said economic growth in 2014 should hit 1.1 percent in the euro area — a revision downwards of his forecasts of 1.2 percent in May and 1.4 percent in February — and 1.4 percent across the Union. But growth should continue to strengthen in 2015, to 1.7 percent in the euro area and 1.9 percent in the Union. Jabbing back at Mr. Rehn from Paris, the French finance minister, Pierre Moscovici, said that Brussels officials were wrongly assuming that French policy would remain unchanged and failing to take into account the government’s plans to cut spending.
“There are increasing signs that the European economy has reached a turning point,” Mr. Rehn said. “But it is too early to declare victory,” he said, adding that a key issue was that “unemployment remains at unacceptably high levels.” But with the French public wearying of the seemingly never-ending lineup of new taxes since Mr. Hollande took office last year, and with municipal elections looming in 2014, it is not clear how much latitude the government has to address the budget deficit.
He warned that employment was unlikely to recover as fast, something that could mean years of further hardship for the millions of Europeans who remain out of work or are looking for their first job. Even so, Mr. Rehn said he was “counting on these countries to undertake serious and effective economic reforms to boost competitiveness, growth and employment,” having already given them both an extra two years to meet deficit targets. He was referring to France and Spain.
According to the forecasts, unemployment in the euro area will rise to 12.2 percent this year and remain at that level through 2014, compared with a rate of 11.4 percent in 2012. Across the Union, unemployment was expected to rise to 11.1 percent in 2013, compared with 10.5 percent last year, before easing slightly to 11 percent in 2014. Marie Diron, a senior economic adviser at EY, a consultancy, said the outlook for the euro area was broadly in line with those by her own company. But she was “less optimistic about the strength of the recovery” that Mr. Rehn projected for the euro zone of 1.1 percent next year and 1.7 percent in 2015. “Weaker growth,” she warned, “would mean that the risk of deflation is more significant than implied” by the forecast.
In Greece, the average unemployment rate for 2013 was expected to hit 27 percent, compared with 24.3 percent in 2012. In Spain, the figures showed unemployment rising to 26.6 percent this year from 25 percent last year. The forecasts showed unemployment remaining at around a quarter of the workforce in both countries in 2015. Mr. Rehn acknowledged that “unemployment remains at unacceptably high levels” in Europe and was unlikely to improve quickly.
The unemployment forecast for France is also likely to prompt concerns because it showed a steady rise over the next three years to 11.3 percent by 2015, from a level of 10.2 percent last year. In Italy, unemployment was expected to reach 12.2 percent this year, then rise again to 12.4 percent in 2014 and ease only slightly, to 12.1 percent, in 2015. According to the forecast, unemployment in the euro zone will rise to 12.2 percent for 2013 and remain at that level through next year, compared with a rate of 11.4 percent in 2012.
Mr. Rehn offers his forecasts three times a year, and to some extent they have become an exercise in justifying the kind of austerity medicine he has prescribed since the accumulation of enormous debt in countries like Greece, Portugal and Ireland that threatened the existence of the euro. The debt load has crippled other economies in the bloc and contributed to problems like chronic joblessness. “This forecast once again confirms that doing nothing does nothing for the European economy,” Hannes Swoboda, who leads the powerful Socialist bloc in the European Parliament, said in a statement. “An illusory ‘turnaround’ has been announced — always just around the corner — for years now, but never materializes,” said Mr. Swoboda, a lawmaker from Austria.
On Tuesday, Mr. Rehn said that years of painful reforms and budgetary rigor made it more likely that domestic demand would gradually become the main engine for growth in Europe. In Italy, unemployment was expected to reach 12.2 percent this year, then rise again to 12.4 percent in 2014 and ease only slightly, to 12.1 percent, in 2015.
“The fiscal consolidation and structural reforms undertaken in Europe have created the basis for recovery” and “we must continue working to modernize the European economy,” he said. Mr. Rehn offers his forecasts three times a year, and critics have come to see them as exercises in justifying the kind of austerity medicine he has prescribed since the accumulation of enormous debt in countries like Greece, Portugal and Ireland threatened the existence of the euro. The debt load has crippled other economies in the bloc and contributed to problems like chronic joblessness.
The economies of Germany and France, the largest in the euro area, were expected to post, at best, anemic growth of 0.5 percent and 0.2 percent respectively this year, while the economies of Italy and Spain, the third and fourth largest in the euro area, were expected to shrink by 1.8 percent and 1.3 percent respectively. On Tuesday, Mr. Rehn said that years of painful reforms and budgetary rigor made it more likely that domestic demand would gradually become the main engine for growth in Europe. “The fiscal consolidation and structural reforms undertaken in Europe have created the basis for recovery” and “we must continue working to modernize the European economy,” he said.
Two of the largest economies outside the euro zone, Britain and Sweden, were expected to post more robust growth of 1.3 percent and 1.1 percent this year. Mr. Rehn has also recently gained powers to monitor national budgets and assess the performance of individual European economies. He will use the forecasts he made on Tuesday to make assessments on Nov. 15 of whether countries like France and Italy will need to make more efforts at reform and fiscal tightening, and whether Germany should do more to ease a trade surplus that international economic officials and the United States have criticized as too high.
Mr. Rehn has also recently gained powers to monitor national budgets and assess the performance of individual European economies. He will use the forecasts on Tuesday as partial assessments of whether countries like France and Italy will need to make more efforts at reform and fiscal tightening, and whether Germany should do more to ease a trade surplus that international economic officials and the United States have criticized as too high. Closer term on the policy front, a growing number of economists are forecasting E.C.B. action on Thursday, either in the form of a cut in official interest rates or stepped-up lending to euro zone banks — or both.
The forecasts could increase the chances that the European Central Bank will take action to stimulate the economy when it meets on Thursday. Last week, official figures showed inflation falling to an annual rate of just 0.7 percent, well below the E.C.B.'s official target of about 2 percent. Mr. Rehn’s forecasts could bolster those members of the E.C.B.'s governing council who believe that action is needed to prevent the euro zone from becoming stuck in the same kind of economic stagnation that has long afflicted Japan. Other E.C.B. watchers, though, expect the central bank to hold off until December, after its in-house economists have updated their own forecasts.
A growing number of economists are forecasting E.C.B. action on Thursday, either in the form of a cut in official interest rates or stepped-up lending to euro zone banks, or both. Other E.C.B. watchers expect the central bank to hold off until December, after its in-house economists have updated their own forecasts. With the E.C.B.'s benchmark interest rate already at a record low of 0.5 percent, “another cut now would leave precious little room to maneuver,” Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., wrote in a note to clients on Tuesday.
With the E.C.B.'s benchmark interest rate already at a record low of 0.5 percent, “another cut now would leave precious little room to maneuver,” Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., said in a note to clients on Tuesday. Mr. Rahman, the Eurasia Group director, said Mr. Rehn’s forecasts “will be used by both E.C.B. doves and hawks alike.” But because “the numbers are far from conclusive, they are likely to reinforce as opposed to unlock E.C.B. gridlock,” he said.
Mr. Rahman, the Eurasia Group director, said Mr. Rehn’s forecasts “will be used by both ECB doves and hawks alike.” But because “the numbers are far from conclusive, they are likely to reinforce as opposed to unlock ECB gridlock,” he said. European corporations remain cautious about the prospects for recovery.
European corporations remain cautious about the prospects for recovery in Europe. “If we have growth in Europe it will be at a very low level,” Norbert Reithofer, chief executive of the German automaker BMW, said during a conference call with reporters Tuesday. He said he expected growth to pick up during the second half of next year. “If we have growth in Europe it will be at a very low level,” Norbert Reithofer, chief executive of the German automaker BMW, said during a conference call with reporters on Tuesday. He said he expected growth to pick up during the second half of next year.

Jack Ewing contributed reporting from Frankfurt and David Jolly contributed reporting from Paris.