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EU cuts growth forecast, warns of inflation risks

By Wu Gang | 2016-05-24 | Hits:
(Chinese Social Sciences Today)

Photo taken on May 18, 2016 shows a scene of the European Economic Congress in Katowice, Poland. The 8th European Economic Congress started here on Wednesday.


In the recently released Spring European Economic Forecast, the European Commission cut its growth estimates and voiced concerns about inflation in the euro area. The report predicts that the GDP in the 19-nation region will grow 1.6 percent in 2016 and 1.8 percent in 2017.

Each of these estimates is 0.1 percentage point lower than the forecast in February. And the commission trimmed its economic growth forecast for the European Union to 1.8 percent this year from 1.9 percent last year.

The commission lowered its inflation expectations to 0.2 percent, far below the European Central Bank’s goal of just under 2 percent. It is expected that inflation will remain close to zero in the near term as global oil prices continue to fall this year. However, inflation should rise significantly in the second half of this year as energy prices gradually pick up and domestic prices increase on the back of strengthening domestic demand.

Driven by improved conditions and wage growth, the moderate pace of improvement in labor markets is expected to continue. Unemployment in the euro area is expected to fall to 10.3 percent in 2016 and then 9.9 percent in 2017. In the European Union as a whole, unemployment is projected to fall from 9.4 percent in 2015 to 8.9 percent in 2016 and 8.5 percent in 2017.

According to data Eurostat released in the end of April, unemployment in the euro area decreased to the lowest level seen in more than four years. Still, recovery in the euro area remains uneven, which is unacceptable and requires determined action from governments, both individually and collectively, said Pierre Moscovici, commissioner for Economic and Financial Affairs, Taxation and Customs.

Last year, the global economic growth rate was 3.5 percent, the lowest seen since 2009, and it is expected to weaken further this year. The commission warned of the external risks posed by geopolitical tensions and fluctuating oil prices as well as uncertainties surrounding Britain’s referendum on leaving the European Union.

Scholars said future economic growth in Europe should rely more on internal driving forces, considering the weaknesses of the global economy. Valdis Dombrovskis, European Commission vice-president in charge of the euro and social dialogue, said the EU should step up structural reform to address long-standing problems in many countries, including high levels of public and private debt, vulnerabilities in the financial sector and declining competitiveness. This is the only way to ensure strong and sustainable growth in Europe, he said.



 Wu Gang is areporter at the Chinese Social Sciences Today.