Post on 22-Dec-2015
European Economic Forecast – Winter 2015
Marco Buti, Director General DG ECFIN
EPC Policy Dialogue
Brussels, 24 February 2015
Forecast in a snapshot
2
2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016
Germany 0.1 1.5 1.5 2.0 1.6 0.8 0.1 1.6 5.2 5.0 4.9 4.8
Spain -1.2 1.4 2.3 2.5 1.5 -0.2 -1.0 1.1 26.1 24.3 22.5 20.7
France 0.3 0.4 1.0 1.8 1.0 0.6 0.0 1.0 10.3 10.3 10.4 10.2
Italy -1.9 -0.5 0.6 1.3 1.3 0.2 -0.3 1.5 12.2 12.8 12.8 12.6
P ortugal -1.4 1.0 1.6 1.7 0.4 -0.2 0.1 1.1 16.4 14.2 13.4 12.6
Euro area -0.5 0.8 1.3 1.9 1.4 0.4 -0.1 1.3 12.0 11.6 11.2 10.6
P oland 1.7 3.3 3.2 3.4 0.8 0.1 -0.2 1.4 10.3 9.1 8.8 8.3
United Kingdom 1.7 2.6 2.6 2.4 2.6 1.5 1.0 1.6 7.6 6.3 5.6 5.4
EU 0.0 1.3 1.7 2.1 1.5 0.6 0.2 1.4 10.8 10.2 9.8 9.3
USA 2.2 2.4 3.5 3.2 1.5 1.6 -0.1 2.0 7.4 6.2 5.4 4.9
J apan 1.6 0.4 1.3 1.3 0.4 2.7 0.6 0.9 4.0 3.7 3.7 3.6
China 7.6 7.4 7.1 6.9 2.6 2.3 2.5 3.0 : : : :
Real GDP Inflation Unemployment rate
Very gradual and uneven recovery
Steep fall in oil pricesBrent oil spot prices (USD/€)
3
30
50
70
90
110
130
12 13 14 15
USD/bbl
EUR/bbl
price per bbl
How large is the bonus?
Monetary policy has eased further, and financial fragmentation has receded
4
10-year government bond spreads
Long term inflation expectations
0
6
12
18
24
30
36
0
6
12
18
24
08 09 10 11 12 13 14 15
IT ES PT IE EL (right scale)
(level)
QE effects may surprise on the upside
0
0.5
1
1.5
2
2.5
3
01/12 07/12 01/13 07/13 01/14 07/14 01/15
Inflation expectations 10 years forward 10 years ahead
Inflation expectations 5 years forward 5 years ahead
Inflation expectations 3 years forward 3 years ahead
Inflation expectations 1 year forward 1 year ahead
Euro has depreciated against major peers
5
Euro exchange rates, USD and JPY
Real and nominal effective exchange rate
-6
-4
-2
0
2
4
6
8
LV LT
EE FI SI LU
AT
SK DE
BE
NL PT MT IT FR ES
EL
CY IE
EA
19
NEER
REER
%monthly averages (% change March - December 2014)
90
100
110
120
130
140
150
160
170
180
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
06 07 08 09 10 11 12 13 14 15
USD/EUR (left scale)
JPY/EUR (right scale)(level) (level)
Who will benefit most?
Fiscal stance neutral in aggregate is appropriate
6
Budgetary developments, EU
Composition and distribution not optimal
-7
-6
-5
-4
-3
-2
-1
0
1
2
-7
-6
-5
-4
-3
-2
-1
0
1
2
09 10 11 12 13 14 15 16
General goverment balance (left scale)
Change in structural balance (right scale)
forecast
% of GDP % points
Policy measures and lower oil prices stimulating domestic demand
7
Real GDP growth and its components, EU
-5.5
-4.5
-3.5
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
07 08 09 10 11 12 13 14 15 16
Net exports InventoriesInvestment Government consumptionPrivate consumption GDP (year on year % change)
forecast
% points
Though still subdued
Energy prices drive the fall in inflation
8
HICP and sub-components, EU
-1
0
1
2
3
4
5
07 08 09 10 11 12 13 14 15 16
Energy and unprocessed food [% points]
Other components (core inflation) [% points]
HICP, all items
forecast
year on year % change
ECB`s move reduces the risk of a debt-deflationary trap
Unemployment slowly declining, but still high
9
Employment growth and unemployment rate, EU
6
7
8
9
10
11
-0.8-0.6-0.4-0.20.00.20.40.60.81.0
07 08 09 10 11 12 13 14 15 16
Employment (quarter on quarter % change, leftscale), forecast (year on year % change, left scale)Unemployment rate (right scale)
% % of the labour
forecast
Forecast figures are annual data.
Past reforms start to pay off
Current-account rebalancing, still lopsided
10
Current-account balance, EU
"In the long run, we`re all … in surplus". Or are we?
-20
-15
-10
-5
0
5
10
DE
LU
NL
AT FI BE
EA FR IT
MT SI IE SK EE
ES
PT LV
CY LT
EL
2008 2015
% of GDP
Strictness of EPL (regular contracts)
Structural reforms needed to boost growth and facilitate rebalancing
Enhance reform responsiveness across the board
Strictness of EPL (regular contracts)
Risks to the growth outlook:increased in both directions
12
Risks on the downside:• Geopolitical risks• Renewed financial volatility• Delayed implementation of structural reforms• Long period of low inflation
Risks on the upside:• Full effect of QE• Further exchange rate depreciation• Larger impact of low oil prices• Effect of EU action plan on investment
A bi-modal distribution? Economists and (even more) institutions are not good at spotting turning points
Key messages
13
EU determined policy response needed to attain the good equilibrium:
•Very accommodative monetary policy appropriate •Broadly neutral fiscal policy stance: distribution and composition•The Commission’s guidance on the application of the Stability and Growth Pact •The EU Investment Plan: implement in all strands •Structural reforms: step up the gear also in core countries
Thank you for your attention