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Europe Expects Its Economy to Grow 1.6% This Year Europe Expects Its Economy to Grow 1.6% This Year
(about 5 hours later)
BRUSSELS — The European Commission said on Monday that growth across the European Union would gain significant momentum this year and continue through 2015, but it also warned of numerous threats that could still derail a slow, gradual recovery.BRUSSELS — The European Commission said on Monday that growth across the European Union would gain significant momentum this year and continue through 2015, but it also warned of numerous threats that could still derail a slow, gradual recovery.
The commission, the bloc’s executive arm, also stressed the need for more robust domestic consumption partly because of an expected weakening of demand for European exports. The commission, the bloc’s executive arm, also stressed the need for more robust domestic consumption, partly because of an expected weakening of demand for European exports.
“The recovery has now taken hold,” said Siim Kallas, an Estonian politician who is a vice president of the commission. But it is “important to embrace structural reforms early on and to stay the course, whatever challenges may be faced along the way,” he said.“The recovery has now taken hold,” said Siim Kallas, an Estonian politician who is a vice president of the commission. But it is “important to embrace structural reforms early on and to stay the course, whatever challenges may be faced along the way,” he said.
Mr. Kallas, standing in for Olli Rehn, the commissioner for economic and monetary affairs, who is on leave to campaign for election to the European Parliament, identified multiple hazards that could still affect the economy, including tensions with Russia, a prolonged period of low inflation, and an unwillingness by member governments to continue reforms.Mr. Kallas, standing in for Olli Rehn, the commissioner for economic and monetary affairs, who is on leave to campaign for election to the European Parliament, identified multiple hazards that could still affect the economy, including tensions with Russia, a prolonged period of low inflation, and an unwillingness by member governments to continue reforms.
Concern about the vulnerability of the euro area was highlighted by a small trimming of the growth forecast for next year to 1.7 percent from the 1.8 percent forecast issued in February. Concern about the vulnerability of the 18 countries that share the euro as their currency was highlighted by a small trimming of the growth forecast for next year to 1.7 percent from the 1.8 percent forecast issued in February.
But overall there was some reason for optimism, Mr. Kallas said. “Deficits have declined, investment is rebounding and, importantly, the employment situation has started improving,” he said.But overall there was some reason for optimism, Mr. Kallas said. “Deficits have declined, investment is rebounding and, importantly, the employment situation has started improving,” he said.
Growth across the 28-member union should reach 1.6 percent this year and hit 2 percent next year, compared with a figure of only 0.1 percent last year, the commission said. Growth in the euro area should reach 1.2 percent this year, compared with a decline of 0.4 percent last year, the report said. Growth across the 28-member union should reach 1.6 percent this year and hit 2 percent next year, compared with a figure of only 0.1 percent last year, the commission added.
Growth in the 18 countries that share the euro as their currency should reach 1.2 percent this year and 1.7 percent next year, compared with a decline of 0.4 percent last year. Mr. Kallas played down the threat from deflation although the commission’s report showed that inflation would be lower this year, at 0.8 percent, than the 1 percent it had forecast in February. “We don’t consider that this problem will be a serious obstacle,” Mr. Kallas said at a news conference on Monday.
Mr. Kallas played down the threat from deflation although the commission’s report showed that inflation would be lower this year, at 0.8 percent, than the 1 percent it had forecast in February. “We don’t consider that this problem will be a serious obstacle,” Mr. Kallas said during a news conference on Monday. That inflation figure is well below the European Central Bank’s target of just below 2 percent. The E.C.B. is due to hold its monthly rate-setting meeting Thursday in Brussels.
The forecasts are also important indicators for the policies the commission will expect from France, where there have been fears that the economy could slip back into stagnation, and Italy, where a reform-minded government is seeking to loosen its debt targets. Analysts said that the central bank was unlikely to lower its benchmark interest rate or to announce other measures aimed at averting deflation, such as large-scale asset purchases, at its meeting this week. “We think that the E.C.B. will once again try to buy some time with words, not with deeds,” Carsten Brzeski, an economist at ING, wrote in a research note.
The report showed growth in those countries still was expected to lag behind the rest of the euro area. In France, the commission forecast an uptick of 1 percent this year and 1.5 percent in 2015. In Italy, the figure for this year was expected to be 0.6 percent this year and 1.2 percent next year. The forecasts issued on Monday are also important indicators for the policies the commission will expect from France, where there have been fears that the economy will slip back into stagnation, and Italy, where a reform-minded government is seeking to loosen its debt targets.
Although the long slump that took root in 2008 is definitively over, the commission made its forecasts amid continuing concerns about a labor market that remains stagnant more than five years after the bloc was racked by its worst downturn in decades. The report said growth in those countries still was expected to lag behind the rest of the euro area. For France, the commission forecast an uptick of 1 percent this year and 1.5 percent next year. The French government also predicts that the economy will grow 1 percent this year but sees the pace picking up to a 1.7 percent in 2015.
Conditions for job seekers have started to improve during the past year, but the decline in the unemployment rate — which stood at 12 percent in the euro area last year — still will be only very gradual, falling to 11.8 percent this year and to 11.4 percent next year, the report said. For Italy, the commission forecast growth of 0.6 percent this year and 1.2 percent next year. That is slightly lower than official forecasts from Rome, where the government expects the economy to grow 0.8 percent this year and 1.3 percent in 2015.
Although the long slump that took hold in 2008 is definitively over, the commission made its forecasts amid continuing concerns about a labor market that remains stagnant more than five years after Europe was racked by its worst downturn in decades.
Conditions for job seekers have started to improve during the past year, but the decline in the unemployment rate in the euro area — which stood at 12 percent last year — still will be only very gradual, falling to 11.8 percent this year and to 11.4 percent next year, the report said.
Across the European Union, the report said, the unemployment rate was expected to fall to 10.5 percent this year and to 10.1 percent next year. That compares with a rate of 10.8 percent last year.Across the European Union, the report said, the unemployment rate was expected to fall to 10.5 percent this year and to 10.1 percent next year. That compares with a rate of 10.8 percent last year.
The stickiness in the job market in Europe, where rigid rules on hiring and firing can discourage employers from adding workers, is regarded by economists as one of the key factors impeding more robust growth in the region and holding back employers from replacing the millions of jobs lost since 2008.The stickiness in the job market in Europe, where rigid rules on hiring and firing can discourage employers from adding workers, is regarded by economists as one of the key factors impeding more robust growth in the region and holding back employers from replacing the millions of jobs lost since 2008.
The report said that Greece and Spain, which were among the countries hit hardest by the economic crisis, were expected to mark small declines in joblessness this year, but that the unemployment rate still would remain at 24 percent in both countries next year.The report said that Greece and Spain, which were among the countries hit hardest by the economic crisis, were expected to mark small declines in joblessness this year, but that the unemployment rate still would remain at 24 percent in both countries next year.
Left-leaning political leaders responded to the report on Monday by saying that many Europeans were still paying a high price for the austerity policies imposed on them during the debt crisis to shore up government budgets. At least one said that the United States had done better than Europe in climbing out of the crisis.
“The clear trend of shrinking unemployment shows that the U.S. did the right thing, investing during tough times rather than cutting all expenditure until the economy is paralyzed,” said Hannes Swoboda, the president of the Socialists & Democrats group in the European Parliament.