Headwind: as China slowed down the development of the Eurozone economy


Headwind slowing

The European Commission published in Thursday’s economic forecast for EU countries in 2016 has led the new estimates of GDP growth in the Eurozone. They decreased: if in November they expected the increase of 1.8%, and 1.7%. However, this is more than an updated assessment growth in 2015, which amounted to 1.6%.

The revision is associated with a slowdown in China and other emerging economies that, in turn, has a negative impact on world trade — last year it grew at the slowest rate since 2009. Besides commenting on the report of the Vice-President of the European Commission Valdis Dombrovskis said that another “headwind” for the economy of the Union is the rise of geopolitical tensions on the borders of Europe.

The overall global slowdown may be offset in the Eurozone the combination of low oil prices, low interest rates and a weakening of the Euro against the dollar. These factors, the report notes, “likely to have a greater and more lasting impact than previously anticipated.” However, to accelerate the growth of the Eurozone will need to restore the international economic activity; if it does, the effect is that the EU will feel later in 2016 and 2017. Next year experts predict the GDP growth in the Eurozone at the level of 1.9%.

But slow growth may be called into question, for example in the case of the restoration of checks at internal borders because of the crisis with refugees from Syria. “The suspension of the Schengen area and the adoption of other measures that threaten the success of the internal market, can potentially have a negative impact on economic growth,” the report said.

Economists of the European Commission stipulate: in the current environment forecasting “highly uncertain”, with “the probability that things are not worse [than the base scenario] is higher than the probability that things will go uphill”.

Oil pillow

Due to demand significantly exceeding the offer prices for oil will remain in 2016 “at a much lower level” and “the rebound will be postponed to a later period” than assumed in the autumn forecast. In the opinion of the European Commission, the average price of Brent crude oil in 2016 will be $35,8 per barrel., that below November’s forecast by a third. The forecast for 2017 is also reduced — from $58,8 per barrel. up to $42,5 for Barr.

“While this should support further growth households purchasing power of Eurozone countries is also likely to delay a rise in inflation, which remains at very low levels, and will put additional financial pressure on the countries — exporters of raw materials”, — explained in the report.

Inflation does not accelerate

The forecast on growth of consumer prices in the Eurozone in 2016 revised downward: it will be not 1%, and 0.5%. The European Central Bank insists on the need to bring inflation to 2%. “Risks of delaying outweigh the risks from acting too hastily,” announced the President of the ECB Mario Draghi Tuesday in Frankfurt, urging governments in the EU as actively as possible to fight for higher inflation.

In some States of the monetary Union (Greece, Spain, Lithuania, Slovakia, Slovenia, Finland and Cyprus) in the last year even, there was deflation. “Although we saw an increase from September’s negative values, the growth in the fourth quarter were significantly lower than predicted in the autumn”, — concluded the authors of the report, citing factors such as falling costs of energy-intensive goods and services because of cheaper energy commodities.

In 2016 deflation must face only Lithuania and Slovenia, the authors predict.

Greece Zdorovie

Surprise this forecast were the indicators of Greece. The European Commission, predicted the decline of the Greek GDP in 2015 to 1.4% and 1.3% in 2016, now says that last year the national index fell (but not increased), and this year it will be a reduction of 0.7%. Also improved forecasts on unemployment and the level of debt.

Countries such as Spain, Italy, Portugal and France, by contrast, show the worst results — in particular this applies to the fulfilment of the obligations to reduce the budget deficit to less than 3% of GDP. The EU Ministers of Finance recommended to the Paris to cut the deficit in 2015 at 0.5%, continuing its decline in the future, but new data show that the reduction was a modest 0.2%. In 2017, experts predict France a deficit of 3.2%.