European Commission Raises Eurozone Growth Forecasts for 2014-15

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Researched by Industrial Info Resources (Sugar Land, Texas)--The European Commission (EC), the governing body of the European Union, upgraded its growth forecast for the 18-country Eurozone to 1.2% from 1.1% in 2014, and 1.8% from 1.7% in 2015. European Commissioner for Economic and Monetary Affairs Olli Rehn said that the economic recovery is more balanced than before. "Recovery is gaining ground in Europe, following the return to growth in the middle of last year," Rehn said at a press conference in Strasbourg, France.

The growth forecast for the wider, 28-nation EU was revised up by 0.1 points to 1.5% in 2014, and to 2% in 2015.

"The strengthening of domestic demand this year should help us to achieve more balanced and sustainable growth," Rehn said. "Rebalancing of the European economy has been progressing and external competitiveness is improving, particularly in the most vulnerable countries. The worst of the crisis may now be behind us."

The Eurozone gross domestic product (GDP) expanded 0.3% in the fourth quarter, slightly above the median forecast of 0.2%.

The EC marginally lowered its Italian growth projections to 0.6% in 2014, from 0.7% in previous estimates. "After contracting 1.9% in 2013, Italy's economy is expected to stage a slow recovery in 2014, driven by stronger external demand," the EC said in its report on the Italian economy. "As credit conditions ease, growth is expected to rise further in 2015."

The commission kept the growth prediction for 2015 unchanged at 1.2%. The estimates are gloomier than the Italian government's predictions of 1% growth this year and 1.7% in 2015.

As for France, the EC raised its forecast to 1% in 2014, and expects France to miss the GDP target of 3.6% set in the budget law. The commission forecasts France's deficit will fall to only 4% of GDP, an upward revision from the 3.8% forecast in November and sharply higher than the 3.6% French government targets.

The EC confirmed the recovery trend in Spain, with an upward revision for Spanish GDP to 1% from a previous 0.5% for 2014. The improvement in the economic outlook should have a positive impact on employment; however, the report only states a slight improvement in unemployment, at 25.7% for this year. The deficit is expected to reach 5.8% in 2014 and expand to 6.5% in 2015, if no additional austerity measures are implemented.

For Germany, the commission revised its growth forecast slightly to 1.8% from 1.7% in the previous report for 2014. The commission expects domestic demand to be the engine of growth acceleration. The forecast for consumer prices was revised down to 1.4% for this year, which will support private consumption.

The commission raised its growth estimate for the U.K. by 2.5% in 2014, compared with a forecast of 2.2% in November, and left the 2015 forecast unchanged at 2.4%. The jobless rate in the U.K. is expected to fall to 6.8% by the end of the year, while inflation will stay close to the Bank of England's 2% target until the end of 2015.

Unemployment Reforms
Across the Eurozone, the average unemployment rate is forecast to drop from 12.1% in 2013 to 12% in 2014, and 11.7% in 2015.

"Unemployment remains high in many member states, as we know, although we expect some improvement in the course of this year and next year," Rehn said. "To make the recovery stronger and create more jobs, we need to stay the course of economic reform."

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