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  • Writer's pictureThomas Cole

Latest European Commission growth forecasts show mixed picture

Today’s (Thursday 13 February 2020) growth forecasts by the European Commission for EU member states for 2020 and 2021 show mixed picture across the continent. As has been the case for the last few years, it is the bloc’s newer member states which are (by-and-large) showing strong signs of growth whilst the older member states’ economic performances are sluggish at best, with the exceptional outlier of the Republic of Ireland and Luxembourg. Malta is forecasted to have the highest growth at 4.0% this year and Italy (one of the EU’s worst economic performers for the past few years) is expected to only grow at 0.3%.

Of the EU’s newer members (Malta aside), member states with predicted healthy performances this year include Hungary at 3.2%, Poland at 3.3% and Romania at 3.8%. Older member states, including the EU’s largest economies are all predicted to grow albeit at a slow pace. Noticeably Germany’s and France’s economies are only expected to grow at 1.1% this year. Both countries face growing political uncertainty, with Germany still coming to terms with the fall out of the “Thüringen affair” and the CDU leader Annegret Kramp-Karrenbauer’s subsequent resignation, whilst Emmanuel Macron’s La Republique-En Marche movement are projected to do badly at municipal elections next month, following the public fall-out and backlash at attempts to reform France’s pension system.

In its press release on the economic growth forecast figures, the Commission noted that “The ‘Phase One' trade deal between the US and China has helped to reduce downside risks to some extent” but nevertheless cautioned that downside risks to economic growth remained. The Commission also addressed the uncertainty which remains over the future UK-EU trading relationship, where EU member states are expected to sign-off on the European Commission’s draft mandate for the future relationship at the 25 February General Affairs Council. As a reminder, unless the UK and EU have a trade relationship in place by 1 January 2021 and on the assumption that the transition period is not extended then the UK and EU will be trading on WTO terms in just over 10 months’ time.

In order to help stimulate economic growth across the EU, the Commission spoke of the need for “more expansionary and growth-friendly fiscal policies” as well as “more benign financing conditions in some euro area Member States.” One positive and note-worthy story was that of Greece – only a decade ago, in the depths of the €-zone crisis, now predicted to be growing at 2.4% this year and 2.0% in 2021.

In total, the Commission is predicting the €-zone to grow at 1.2% both this year and next (almost identical to the sluggish growth in France and Germany and further highlighting the importance of these two economies to the €-zone and the EU as a whole) whilst growth for the EU is predicted to be both 1.4% this year and next. The EU’s Vice President for the Economy, Valdis Dombrovkis was quoted as saying that “the European economy remains on a steady path, with continued job creation and wage growth. But we should be mindful of potential risks on the horizon” whilst Paolo Gentiloni, European Commissioner for the Economy, said: “The outlook for Europe's economy is for stable, albeit subdued growth over the coming two years.”

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