Economic outlook, analysis and forecasts

Euro Area - Economic forecast summary (June 2015)

 

Economic growth will gradually strengthen to 2¼ per cent by the end of 2016, supported by lower oil prices, the depreciation of the euro, improving financial conditions, additional stimulus from further monetary expansion and a pause in fiscal adjustment. However, unemployment will decline only gradually, to a rate of 10¼ per cent at end 2016. Inflation should edge up to around 1 ½ per cent as the effects of lower energy prices dissipate and monetary easing is stepped up. Risks are broadly balanced around the projections, although event risks surrounding renewed financial turmoil remain significant.


Fiscal policy will be broadly neutral, which is appropriate in the short run as the recovery is still weak and uncertain. Nevertheless, credible medium term consolidation plans are needed since government debt is still much too high in many countries. The very supportive monetary stance should continue as planned, as inflation is still well below 2% and growth is weak. Vulnerable countries have made significant progress in structural reforms following the onset of the crisis. However, further reform efforts, notably completing the Single Market, are needed to durably raise economic activity and to make growth more inclusive.


Reinvigorating private and public investment is crucial to lift the economy to a higher growth trajectory. The Investment Plan for Europe is expected to help. To create additional investment, projects with high social returns, and that would not be realised without public guarantees, should be selected. A key example is strengthening cross-border infrastructure in electricity, gas and rail networks. Complementary structural reform, supporting entrepreneurship and the full integration of European capital markets, would also help to unlock private investment.

 

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