The European economy continues to recover in most EU countries, though at a different rate and strength. However, the legacy of debt and fiscal consolidation from the financial crisis mean the recovery will remain fragile.
All main indicators point to a continued recovery
Since the EU's last forecast in autumn, the outlook both for the bloc and the eurozone has improved. GDP for the EU as a whole, up 0.1% in 2013, is now projected to grow 1.5% this year and 2% in 2015. Growth forecasts for the eurozone are slightly lower at 1.2% in 2014 and 1.8% the following year.
The European recovery is expected to become broad-based across the bloc this year and to start strengthening in the vulnerable countries on the eurozone periphery. Though growth differentials will persist, the gap between the best performing countries and those still facing difficulties will narrow. In 2014, only Cyprus and Slovenia are still forecast to register negative annual GDP growth rates; by 2015 all EU economies are expected to grow again.
Olli Rehn, Commission Vice-President for Economic and Monetary Affairs and the Euro said: "Recovery is gaining ground in Europe, following the return to growth in the middle of last year. The strengthening of domestic demand this year should help us to achieve more balanced and sustainable growth. Rebalancing of the European economy has been progressing and external competitiveness is improving, particularly in the most vulnerable countries. The worst of the crisis may now be behind us, but this is not an invitation to be complacent, as the recovery is still modest. To make the recovery stronger and create more jobs, we need to stay the course of economic reform."
Conditions in the labour market will see only a small improvement in 2014 and 2015. This is due to labour markets' typical lag in response to an economic rebound, and an overall timid recovery of economic activity in the EU.
Unemployment rate in the Eurozone will stabilise this year. In 2015, however, a slight reduction in joblessness is projected, to around 10.4% in the EU and 11.7% in the eurozone. Significant differences will remain among EU countries over the forecast period; unemployment is projected to stand at 4.8% in Austria and at 26% in Greece this year.
The rate of inflation decreased significantly in 2013 thanks to falling energy and commodity prices, weak demand and the continued appreciation of the euro. Subdued consumer-price inflation is expected to continue in its downward trend this year. In the EU and eurozone it will stand at 1.2% and 1.0% respectively.
Since 2011, reductions in public spending have been substantial in the EU; but the worst of this may be past in most countries - no significant new cuts to public budgets are planned for the rest of the forecast period.
In 2014, budget deficits are expected to stand at 2.70% and 2.6% of GDP in the EU and eurozone respectively. The EU's debt-to-GDP ratio is forecast to peak in 2014 at 90% and at 96% in the eurozone.