by Dan Alexe The European Commission's autumn forecast showed on Tuesday that all European Union (EU) countries are set to register positive GDP growth in 2015 and 2016 despite of current slow recovery with very low inflation. Still, "global GDP growth is significantly lower than anticipated”, was the first announcement made today by Jyrki Katainen, Vice-President of the EC in charge of Jobs, Growth, Investment and Competitiveness, who presented, together with the Economy Commissioner Pierre Moscovici, the 2014 autumn economic forecast. Katainen had few words of praise for the member states, but he warmly congratulated Ireland. In 2014, the range of Member States' growth rates is expected to remain broad, from -0.7% (Croatia) to 4.6% (Ireland). 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. For the next two years, growth in the EU is forecast to rise to 1.5 % in 2015 and then increase modestly to 2.0 % in 2016, while in the eurozone, growth is forecast to rise to 1.1 % and then 1.7 % respectively, said the report. Meanwhile, the annual GDP growth in the EU this year is now projected to be 1.3 %, while growth in the eurozone is expected to be 0.8 %. The autumn forecast said GDP growth forecasts have been revised down due to lack of the underlying dynamics of domestic demand, particularly investment, which has failed so far to emerge as a strong engine of growth. Among the largest Member States, growth in Germany has halted, but is expected to gradually pick up again on the back of a robust labour market and strengthening external demand, while corporate investment is projected to resume only hesitantly. The French economy is expected to register only very slow growth in 2015 amid a subdued pace of private consumption and still contracting investment. In Italy, GDP growth is projected to turn positive early next year, as growing external demand is set to drive a still fragile recovery. In Spain, GDP growth is projected to increase, supported in particular by rising employment and easier financing conditions. Growth in the Netherlands is expected to firm as private consumption picks up again on the back of increasing employment and the gradually recovering housing market. Outside the euro area, the United Kingdom is set to register robust growth, as both investment and consumption expand at a fast pace. Growth in Poland has moderated on the back of weaker external demand, but private consumption is set to support a still healthy expansion. Most of the euro-area Member States that had or have adjustment programmes are now catching up. Growth in Ireland and Greece is expected to be substantially above the EU average next year, and close to it in Portugal. In Cyprus, a modest recovery is expected to begin in 2015. While faster growth in these countries has to be seen against the backdrop of the large output losses during the crisis, it nonetheless points to significant progress in the adjustment. Finally, in most of the Member States that joined the EU a decade or less ago, output is growing faster as the process of real convergence continues. The economic recovery that started in the second quarter of 2013 remains fragile and the economic momentum in many Member States is still weak. Confidence is lower than in spring, reflecting increasing geopolitical risks and less favourable world economic prospects. Despite favourable financial conditions, the economic recovery in 2015 will be slow. This, reflects the gradual fading of the crisis legacy with still high unemployment, high debt and low capacity utilisation. 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. The EU’s recovery appears thus to remain weak, in comparison to other advanced economies and with respect to historical examples of post-financial crisis recoveries, even though these too were typically slow and fragile. Public consumption is expected to contribute marginally to growth. Against the backdrop of a moderate expansion of world trade, net exports are likely to contribute only marginally to GDP growth over the coming years. Job creation has also 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. 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.
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