investmentGATEWAY

Real GDP growth is set to reach 1.6% in the EU and 1.2% in the euro area in 2014, and to improve further in 2015 to 2.0% and 1.7% respectively. The forecast rests on the assumption that the agreed policy measures will be implemented by Member States and the EU, taking forward the necessary adjustment.

Siim Kallas, Commission Vice-President said: “The recovery has now taken hold. Deficits have declined, investment is rebounding and, importantly, the employment situation has started improving. Continued reform efforts by Member States and the EU itself are paying off. This ongoing structural change reminds me of the profound adjustment that the central and eastern European economies undertook in the 1990s and in subsequent years, linked to their joining the EU exactly 10 years ago. Their experience shows how important it is to embrace structural reforms early on and to stay the course, whatever challenges may be faced along the way. In this spirit, we must not lessen our efforts to create more jobs for Europeans and strengthen growth potential.”

A gradual pick-up in economic growth

Overall, domestic demand is expected to become the key driver of growth over the forecast horizon. Consumer spending should progressively add to growth as real income benefits from lower inflation and the stabilising labour market. The recovery in investment should continue to support growth, with gains in both equipment and construction investment. The contribution of net exports is expected to diminish over the forecast horizon.

The gradual nature of this upturn is in line with previous recoveries following deep financial crises. While financing conditions remain benign on average, substantial differences persist across Member States and across firms of different size.

Labour market conditions started to improve in the course of 2013 and more job creation as well as a further decline in unemployment rates should follow (to 10.1% in the EU and 11.4% in the euro area in 2015).

Inflation is expected to remain low, both in the EU (1.0% in 2014, 1.5% in 2015) and in the euro area (0.8% and 1.2%).

Current account deficits in vulnerable Member States have been reduced in recent years following continuous price competitiveness gains. In a number of these economies surpluses are expected in 2014 and 2015.

The reduction in general government deficits is set to continue. In 2014, a decrease is projected to around 2½ % of GDP in both the EU and the euro area. The debt-to-GDP ratio will peak at almost 90% in the EU and 96% in the euro area before falling next year.

The largest downside risk to the growth outlook remains a renewed loss of confidence from a stalling of reforms. Also, uncertainty about the external environment has increased. On the other hand, further bold structural reforms could lead to a stronger-than-envisaged recovery.

While current price developments reflect both external factors and the ongoing adjustment process, a too prolonged period of low inflation could also entail risks. However, the gradually strengthening and increasingly broad-based recovery should mitigate these risks.

For more information and individual country forecasts:

http://ec.europa.eu/economy_finance/eu/forecasts/2014_spring_forecast_en.htm