Eurozone's growing economy

JUERGEN BAETZ
Last updated 10:40 26/02/2014

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Economic growth across Europe is expected to be slightly stronger this year as the recovery gains ground, according to the European Commission's new forecast released on  Tuesday.

The 18-country eurozone's economy is expected to grow by 1.2 per cent in 2014 and by 1.8 per cent next year - 0.1 percentage points more each year than predicted in the Commission's last forecast in November.

"The strengthening of domestic demand this year should help us to achieve more balanced and sustainable growth," said Commissioner Olli Rehn, the bloc's top economic official.

"The worst of the crisis may now be behind us."

Spain stands out as firmly turning the page on a two-year recession. The Commission doubled its 2014 growth outlook for the country to 1 per cent.

Its high unemployment rate, however, is expected to fall only slowly below 26 per cent this year.

For the eurozone as a whole, the jobless rate is seen as staying flat around the current record high of 12 per cent, falling to 11.7 per cent only next year.

The wider 28-nation EU, which includes members like Britain and Poland that don't use the euro currency, will grow by 1.5 per cent this year and 2.0 per cent in 2015, according to the Commission forecast. That outlook is also revised upward by 0.1 percentage points each.

Rehn urged European governments to keep strengthening their economies' competitiveness and trim their deficits, saying the nascent recovery remains modest and can't be "an invitation to be complacent."

The only countries that are forecast to remain stuck in recession in 2014 are Cyprus and Slovenia, set to see their economies shrink by 4.8 per cent and 0.1 per cent respectively.

Cyprus last year required an international bailout that came with the requirement to overhaul its banking system and push through tough debt reduction measures that depressed the economy.

Slovenia's economy, in turn, is mainly held back by trouble with its banks and weak domestic demand.

In Greece, which has lost about a quarter of its economic output over a brutal six-year recession, the Commission continues to foresee a timid return to growth for this year, with GDP set to increase by 0.6 per cent.

The unemployment rate is expected to fall only slightly below 26 per cent.

The Commission expects the eurozone's overall government debt level to stabilise around 95 per cent of GDP before starting to slightly fall from 2015.

Inflation will remain subdued at 1 per cent in 2014, ticking up to 1.3 per cent next year, the Commission said.

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Some analysts caution the eurozone's low inflation rate - recent monthly recordings stood at 0.8 per cent - implies the risk the bloc could fall into a deflationary trap, with falling prices leading companies and consumers to defer purchases and investments which then dents growth.

- AP

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