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Autumn forecast 2014: Slow recovery with very low inflation

The European Commission's autumn forecast projects weak economic growth for the rest of this year in both the EU and the euro area. In the course of 2015, a gradual strengthening of economic activity is expected and growth is projected to rise further in 2016. All EU countries are set to register positive growth in 2015 and 2016. This is also when the lagged impact of already implemented reforms should be felt more strongly.

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Country Forecasts

Gradual recovery ahead

The European Commission's autumn forecast projects weak economic growth for the rest of this year in both the EU and the euro area. Real GDP growth is expected to reach 1.3% in the EU and 0.8% in the euro area for 2014 as a whole. Growth is expected to rise slowly in the course of 2015, to 1.5% and 1.1% respectively, on the back of improving foreign and domestic demand.

An acceleration of economic activity to 2.0% and 1.7% respectively in 2016 is expected to be driven by the strengthening of the financial sector (following the comprehensive assessment by the European Central Bank and further progress towards the Banking Union), as well as recent structural reforms starting to bear fruit.

GDP growth rate, EU

European Economic Forecast - Winter 2014 - GDP

Differences between Member States are expected to decline

In 2014, the range of Member States' growth rates is expected to remain broad, from 4.6% (Ireland) to -2.8% (Cyprus). However, growth differences are expected to decline over the next two years. In 2015 and 2016, all EU countries are set to register positive growth. This is also when the lagged impact of already implemented reforms should be felt more strongly.

Growth map 2014

European Economic Forecast - Winter 2014 - Unemployment

Growth map 2015

European Economic Forecast - Winter 2014 - Unemployment

Labour market conditions improving only slowly

Job creation has been moderate and unemployment rates have fallen slightly from high levels. Since economic growth is expected to gain momentum gradually, more meaningful labour market improvements should occur towards the end of the forecast horizon. The unemployment rate is set to fall to 9.5% in the EU and 10.8 % in the euro area in 2016.

Employment growth and unemployment rate

European Economic Forecast - Winter 2014 - Inflation

Inflation should increase in 2015 and 2016

The trend towards lower inflation has continued over 2014 in EU Member States, driven by lower commodity prices and substantial economic slack. Inflation is set to remain very low in 2014. As economic activity gradually strengthens and wages rise, inflation should increase, also helped by the recent depreciation of the euro. In the EU, inflation is projected at 0.6% in 2014, 1.0% in 2015 and 1.6% in 2016. HICP (Harmonised Index of Consumer Prices) inflation in the euro area is forecast at 0.5% this year and 0.8% in 2015 before rising to 1.5% in 2016.

Inflation

European Economic Forecast - Winter 2014 - Deficit

Deficits are expected to continue falling

The reduction in general government deficits is set to continue. The deficit–to-GDP ratios in both the EU and the euro area are set to decrease further this year, albeit more slowly than in 2013, to respectively 3.0 % and 2.6 %. Government deficits are forecast to continue falling over the next two years, helped by strengthening economic activity. The fiscal policy stance is expected to be close to neutral in 2014 and 2015. The debt-to-GDP ratios of the EU and the euro area are expected to peak next year at 88.3 % and 94.8 % respectively (under the European System of Accounts 2010 definition).

General government balance

Risks to the outlook remain tilted to the downside

Downside risks to the growth outlook still dominate on the back of geopolitical tensions, fragility in financial markets and the risk of incomplete implementation of structural reforms. The risks to the inflation outlook remain balanced.