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On 22 February, the Commission published its first winter economic forecast for the euro area and the European Union as a whole. The forecast covers a wide range of indicators including gross domestic product (GDP), inflation, employment and public finances for 2012‑14.
Gross domestic product
Financial market conditions in the EU have improved substantially since last summer. But economic activity has been disappointing in the second half of last year. However, leading indicators suggest that GDP in the EU is now bottoming out and economic activity is expected to gradually accelerate. The pick-up in growth will initially be driven by increasing external demand. Domestic investment and consumption are projected to recover later in the year, and by 2014 domestic demand is expected to take over as the main driver of strengthening GDP growth.
The weakness of economic activity towards the end of 2012 implies a low starting point for the current year. Combined with a more gradual return of growth than earlier expected, this leads to a projection of low annual GDP growth in 2013 of 0.1% in the EU and a contraction of 0.3% in the euro area.
The contrast between the improved financial market situation and the muted macroeconomic prospects for 2013 is to a large extent due to the balance-sheet adjustment process, which continues to weigh on short-term growth. As this process advances, it will also strengthen the basis for growth in 2014, which is projected at 1.6% in the EU and 1.4% in the euro area.
Olli Rehn, Commission Vice-President for Economic and Monetary Affairs and the Euro summarised the current situation as follows: “We have disappointing hard data from the end of last year, some more encouraging soft data in the recent past, and growing investor confidence in the future. The decisive policy action undertaken recently is paving the way for a return to recovery. We must stay the course of reform and avoid any loss of momentum, which could undermine the turnaround in confidence that is underway, delaying the needed upswing in growth and job creation."
The current weakness in economic activity is expected to lead to an increase in unemployment this year to 11.1% in the EU and 12.2% in the euro area.
As the impact of higher energy prices on inflation is expected to wane, inflation in the EU is forecast to decrease gradually in the course of 2013 and to stabilise around 1.7% in the EU and 1.5% in the euro area next year.
Since many Member States are implementing sizeable fiscal consolidation measures, the fiscal deficits are projected to decrease to 3.4% in the EU and 2.8% in the euro area in 2013.
The release of the winter forecast marks the start of a new era in the Commission's forecasting cycle. For several years the Commission has published two full-scale forecasts, in May and November, supplemented by two considerably less comprehensive interim forecasts. But this had become inadequate in the face of the enhanced economic surveillance required by the economic and financial crisis. So it was decided to replace the two interim forecasts with a single, third, detailed forecasting exercise.
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