BRUSSELS (dpa) – The eurozone economy will grow more than expected this year and next on the back of low oil prices, the euro’s depreciation and stimulus measures, the European Commission predicted Thursday in its newest forecast.
The crisis-battered currency bloc still faces a number of challenges, however, including lower-than-expected inflation and the failure by some of its biggest economies to comply with deficit and debt rules.
“Today Europe stands at a critical juncture,” said Valdis Dombrovskis, the commission’s vice president for matters relating to the euro. “We have to step up the reform momentum to strengthen the recovery and make sure it translates into money in people’s pockets.”
“The fall in oil prices and the cheaper euro are providing a welcome shot in the arm for the EU economy,” added Economy Commissioner Pierre Moscovici. “But there is still much hard work ahead to deliver the jobs that remain elusive for millions of Europeans.”
The commission now believes that growth in the eurozone will reach 1.3 per cent of gross domestic product (GDP) this year and 1.9 per cent in 2016 – up 0.2 percentage points from its previous economic forecast in November.
It also revised upward growth forecasts for the biggest economies in the bloc, reaching 1.5 per cent and 2 per cent for Germany this year and next; 1 per cent and 1.8 per cent for France; 0.6 per cent and 1.3 per cent for Italy; and 2.3 per cent and 2.5 per cent for Spain.
Unemployment in the eurozone remains high and its investment environment is still “weak,” the commission acknowledged, but said that landmark quantitative easing by the European Central Bank and a new investment plan launched by the commission are helping.
The European Union’s executive also warned, however, that the economic outlook is uncertain, pointing to geopolitical tensions, volatility on the financial markets and the risk of “a protracted period of very low or negative inflation.”
The commission’s winter forecast slashes predictions for inflation, estimating that it will fall to -0.1 per cent this year before rising back to 1.3 per cent in 2016.
But the Brussels-based institution has argued that the eurozone is not in deflation since the drop in inflation is driven by external factors such as oil and food prices, rather than an across-the-board drop in price levels.
Deficit and debt levels also continue to pose a headache.