European economic recovery looks bright but surrounded with uncertainty and political risks

Tuesday, 14 February 2017 08:56
For the first time in almost a decade, the economies of all EU Member States are expected to grow in 2017 and 2018. Even those Member States most hit during the recession are also expected to have returned to growth last year. However, the outlook is surrounded by higher-than-usual uncertainty.

According to the Winter Forecast released yesterday (13 February) by the European Commission, real GDP in the euro area has grown for 15 consecutive quarters. Private consumption is still the engine of the recovery. Investment growth continues but remains subdued.

The European Commission expects euro area GDP growth of 1.6% in 2017 and 1.8% in 2018. GDP growth in the EU as a whole should follow a similar pattern and is forecast at 1.8% this year and next.

Among the largest economies, growth in 2017 is expected to be above the EU average: in Poland at 3.2%, in Spain at 2.3% and in the Netherlands at 2.0%.

Italy is forecast to grow only 0.9% this year, the same pace as in 2016, and to slightly strengthen in 2018 to 1.1%. The economy is supported by low real interest rates and stronger external demand, but structural weaknesses still hinder a stronger recovery.

In Greece, after a return to growth in 2016 of 0.3%, which was better than expected, economic activity is expected to expand strongly in 2017 and 2018; respectively 2.7% and 3%.

However the Commission admits that risks surrounding these projections are exceptionally large and although both upside and downside risks have increased, the overall balance remains tilted to the downside.

"The European economy has proven resilient to the numerous shocks it has experienced over the past year,” said Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs.

Growth is holding up and unemployment and deficits are heading lower. Yet with uncertainty at such high levels, it's more important than ever that we use all policy tools to support growth. Above all, we must ensure that its benefits are felt in all parts of the euro area and all segments of society."    

Inflation in the euro area has recently picked up as the past drop of energy prices has recently given way to an increase.  In the EU, inflation is forecast to rise from 0.3% in 2016 to 1.8% in 2017 and 1.7% in 2018.

In the EU as a whole, unemployment is expected to fall from 8.5% in 2016 to 8.1% this year and to 7.8% in 2018. These are the lowest unemployment figures since 2009 but remain above pre-crisis levels.

“The combination of economic expansion, relatively moderate wage growth, as well as reforms implemented in some Member States should support job creation. More than four million new jobs have been created over the past three years. We expect this pace to keep on,” the Commissioner said.

Half of all new jobs in EU temporary

A worrying tendency in the European labour market not mentioned by Commissioner Moscovici is the difficulty for young people to get stable jobs with a good income.

According to an article by Liz Alderman in The New York Times today (14 February), “When even the doctor is a temp”, half of the new jobs created in the EU since 2010 have been through temporary contracts.

The newspaper writes that temporary employees, despite being well-educated, are paid an average of 19 % less than their permanent counterparts, according EU research institute Eurofound.

In for example The Netherlands, more than 20 % of job contracts are temporary. In Spain the overwhelming majority of new jobs last year were through temporary contracts.

More than 40 % of Europe’s young people are “now stuck in a revolving door of low-paid, temporary work”, the newspaper writes, leading to a precarious life, difficulty in getting a bank loan and postponement of family building.

The particularly high uncertainty surrounding this Winter Forecast is due to the still-to-be-clarified intentions of the new administration of the United States in key policy areas, as well as the numerous elections to be held in Europe this year and the upcoming negotiations on Brexit with the UK.

Moscovici was referring to the upcoming elections in the Netherlands, France, Germany, the Czech Republic, Bulgaria, and maybe Italy at the latest in February 2018. “There are political risks everywhere in Europe, not only in my own country France, that could affect the economic development,” he said.

M. Apelblat
The Brussels Times 

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