External factors were largely blamed for the latest slowdown in EU growth, setting back recovery and forcing the European Commission to revise down its growth projections for this year.
The forecast is important for a number of reasons, including that the national budget plans each country submitted to the European Commission last week will be assessed against it, and as a result the Commission may ask member states to change their budgets.
Germany, France, and Italy, the eurozone’s largest economies, all had their forecasts cut, contributing to an expectation of just an 0.8% increase in GDP in the 18 euro member states this year compared to an expected 1.2% six months ago.
Projections for the EU as a whole were also reduced from 1.7% to 1.3%. Added to this are lower inflation figures standing at 0.8%, even lower than the ECB’s expectations of 1.1%.
The outgoing budget commissioner, Jyrki Katainen, said less favourable global economic conditions had negatively affected confidence.
Lower global GDP growth was due to weakness in some advanced and emerging economies but also to rising geopolitical tensions in Ukraine and the Middle East.
Country-specific factors such as historical structural problems, public and private debt overhang, and ongoing financial fragmentation related to the sovereign debt crisis, were also to blame.
“In Europe, economic activity should also gradually strengthen over the course of 2015 and accelerate further in 2016,” said Mr Katainen. “This pick-up will be driven by the legacy of the crisis fading away, structural reforms starting to bear fruit, labour markets improving, and by the presence of more supportive policies and financing conditions.”
The autumn forecast was jointly presented by Mr Katainen, who was an austerity hawk as Finland’s finance minister, and the incoming commissioner, former French finance minister Pierre Moscovici.
The press conference showed some differences in approach between the two men, with Mr Katainen emphasising the continuing need for countries to make structural reforms, while Mr Moscovici emphasised the need for investment.
However, Mr Katainen did say that there was a lot of flexibility in the rules and adjustment was structural and not to nominal figures. The issue was not black and white, he said.
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