Tuesday 16 January 2018

Europe growth prospects brighten amid weak euro and cheap oil

ECB headquarters in Frankfurt
ECB headquarters in Frankfurt
Colm Kelpie

Colm Kelpie

When it comes to the European economy, it seems things are starting to look up.

It's been a bleak period for the continent economically over the last seven or eight years, but for the first time since 2007, the European Commission is estimating that the economies of all member states will grow.

In fact, an upbeat Brussels believes the prospects are brighter than they were just a few months ago, thanks to cheaper oil, a weaker Euro, and the European Central Bank's landmark quantitative easing programme. In its winter economic forecast published yesterday, the Commission upgraded its growth prospects for the Eurozone to 1.3pc from the 1.1pc seen in November, and to 1.9pc in 2016.

Pierre Moscovici, European Economics Commissioner, said there's now a little more to be optimistic about.

"Europe's economic outlook is a little brighter today than when we presented our last forecasts. The fall in oil prices and the cheaper euro are providing a welcome shot in the arm for the EU economy," he said.

But let's not get carried away just yet.

"Growth prospects across Europe are still limited by a weak investment environment and high unemployment," the Commission said.

And while all member states are expected to grow this year, the level of growth differs pretty dramatically between countries. Ireland is topping the table at 3.5pc, while Croatia comes out at the bottom, at just 0.2pc.

Eurozone unemployment is set to fall to 11.2pc of the workforce this year from 11.6pc in 2014, and continue sliding to 10.6pc in 2016 as the economy gathers pace.

In terms of the giants, Germany is expected to grow by 1.5pc this year, with unemployment to dip to 4.9pc.

Growth in Europe's biggest economy is expected to strengthen gradually, with the drop in oil prices having a positive knock-on effect.

After three years of sluggish activity in France, the Eurozone's second biggest economy is expected to see modest growth of 1pc this year.

"The gradual economic recovery is set to be mainly driven by private consumption, the traditional driver of the French economy," the Commission said.

"Dynamic" wages, low inflation, a reduced energy bill and recently-decided tax cuts for low income-households should support consumer spending in the country, the Commission said.

Valdis Dombrovskis, Commission vice president for the euro, said the hard work of an austerity weary populace is now starting to bear fruit.

"The right economic conditions are in place for sustained growth and job creation," he said.

But despite the upbeat assessment, the Commission warns uncertainty is increasing, amid geopolitical tensions and fears of a protracted period of low or negative inflation.

Best to hold off on the party hats for now.

Irish Independent

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