Commission sees modest recovery in Europe, criticises France for budget deficit

EPA/OLIVIER HOSLET

Pierre Moscovici, the EU Commissioner in charge of Economic and Financial Affairs, speaks at a news conference at the EU Commission headquarters in Brussels, Belgium, 05 November 2015. The Commission presented its 2015 Autumn Economic Forecast which sees an overall growth of the euro area real GDP at 1.6 % in 2015.

Commission sees modest recovery in Europe, criticises France for budget deficit


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The economic recovery in the euro area and the European Union as a whole will continue at a modest pace next year despite more challenging conditions in the global economy.

In its Autumn 2015 Economic Forecast, the Commission revealed on Thursday that overall, the euro area real GDP is forecast to grow by 1.6% in 2015, rising to 1.8% in 2016 and 1.9% in 2017. For the EU as a whole, real GDP is expected to rise from 1.9% this year to 2.0% in 2016 and 2.1% in 2017.

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “The European economy remains on recovery course. Looking to 2016, we see growth rising and unemployment and fiscal deficits falling. Yet the improvements are still unevenly spread: particularly in the euro area, convergence is not happening fast enough.”

The steep fall in oil and other commodity prices drove headline inflation in the euro area and the EU into negative territory in September. However, this masks the fact that wage growth, strengthening private consumption and the narrowing of the output gap are beginning to add increasing pressure to prices. Annual inflation is expected to rise from 0.1% in the euro area and 0% in the EU this year, to 1.0% and 1.1% respectively next year, and to 1.6% in both areas in 2017.

France will have a headline budget deficit above the limits set by EU ministers in 2017 although its fiscal outlook will improve over the next two years, Commission’s economic forecasts showed.

The euro zone’s second biggest economy will also miss all its structural budget improvement targets set by EU finance ministers under a disciplinary procedure against Paris, the Commission forecast.

France’s deficit will be at 3.8 % of gross domestic product in 2015, confirming its downward path from the 5 % average in the years between 2007 and 2011, when the financial crisis first hit the euro zone.

Helped by accelerating economic growth, France’s deficit will further decrease to 3.4 % next year, in line with the target set by EU finance ministers.

But unless Paris changes policies, its headline budget deficit in 2017 will only fall to 3.3 %, compared with a 2.8 % target, the EU executive forecast.

Apart from the headline deficit, EU rules put emphasis on the structural adjustment of a government’s budget, because it shows improvement or deterioration after stripping out the effects of the business cycle and one-off flows.

EU ministers asked France in March to reduce its structural budget deficit by 0.5 % of GDP in 2015, 0.8 % in 2016 and 0.9 % in 2017.

But the structural improvement will be only 0.1 % this year, 0.3 % in 2016 and there will be a deterioration of 0.2 % in 2017, the Commission forecast on Thursday.

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