European recovery gains momentum despite ‘Trump effect’

Economic Affairs Commissioner Pierre Moscovici expected the European recovery to be more resilient despite political instability. [Ebs]

The European Commission is expected to revise upwards its growth forecast for Europe on Monday (13 February), showing a marked improvement over its last outlook published hours after Donald Trump was elected US president.

Pierre Moscovici, the EU Commissioner for Economic Affairs, will bring positive news to governments across Europe and the eurozone when he arrives at the press room today.

The UK’s decision to leave the European Union continues to weigh on the continent’s economic perspectives. And the impact the Trump administration will have on the EU’s economy is still unclear.

But despite the political uncertainty, European economies are showing stronger resilience compared to what was expected in early November.

Commission cuts growth forecast for both EU and eurozone in 2017

Europe’s economy will grow less than initially expected as domestic and global risks have intensified, mainly in the wake of the UK referendum and the increased opposition to globalisation.

The European Commission now expects GDP growth in the eurozone to reach 1.6% this year, compared with 1.5% three months ago. The figure will be slightly better also for 2018, with an expected growth of 1.8% of GDP, while the autumn forecast predicted 1.7%, according to figures seen by euractiv.com.

Meanwhile, GDP growth in the EU as a whole is expected to reach 1.8% this year, compared to a forecast of 1.6% in November. In spring, before the Brexit vote and the elections in the US took place, the Commission expected a growth rate of 1.9%. For 2018, the Commission maintains a forecast of 1.8%.

In an interview with euractiv.com last month, Moscovici underlined that “the recovery in the EU is now gaining strength”.

Echoing the growing confidence in Europe’s output among global investors, he also pointed out that the global economy was “in better shape” and “resilient enough” to withstand any political decision taken by the new US administration.

Moscovici: 'Trump will bring more nationalism and protectionism'

Commissioner for Economic Affairs Pierre Moscovici agrees with the ‘wait  and see’ approach toward new US President Donald Trump mostly shared by the global elite in the in Davos. But he sees more nationalism and protectionism coming from the White House.

Despite the dominant bleak discourse among European decision-makers over the past months, the EU outperformed the US economy in 2016.

Economic growth in the eurozone reached 1.7%, compared with 1.6% in the US.

Besides those political risks, the ongoing difficulties on the Greek bailout programme and the uncertainties surrounding the situation of Italian banks are all weighing on the otherwise positive story of the European recovery.

Lenders agree on more austerity for Greece to avoid default

Eurozone and IMF officials met with Greek Finance Minister Euclid Tsakalotos this afternoon (10 February) to overcome the stalemate in the bailout programme after the lenders agreed to request an additional €3.6 billion in cuts by 2018.

Not so bright in Spain

But some of the best performing economies in Europe won’t get the positive news they were hoping for.

Despite robust GDP growth figures in 2016 (3.2%), the Commission will not revise upwards its growth forecast for for Spain today. The country’s GDP will grow at 2.3% this year and 2.1% in 2018, according to estimates. The government expected at least 2.5% this year in order to meet the deficit target of 3.1% of GDP.

This weaker growth, compared to Madrid’s forecast, and the lower yield coming from the fiscal measures announced last December are expected to widen the fiscal gap. The Commission predicted in January that the new adjustments could help Spain bring its deficit to 3.3% of GDP in 2017, and 2.8% in 2018. But now the executive expects a deficit of 3.5% this year and 2.9% in 2018.

Still, these figures represent a marked improvement over the autumn forecast, when the executive foresaw a deficit of 3.8% of GDP in 2017 and 3.2% in 2018. According to the fiscal targets agreed with EU institutions, Spain should reach a deficit of 3.1% of GDP this year and 2.2% of GDP the following one.

EU declares Spain, Portugal in violation of deficit rules

The European Commission on Thursday (7 July) officially declared Spain and Portugal in violation of the EU rules on government overspending, the first step towards unprecedented penalties against members of the 28-country bloc.

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