The European Union authorities on Tuesday sharply lowered growth forecasts as member states like France, Germany and Italy showed weak economic performance, and as business confidence suffered from heightened geopolitical risks.
“The economic and employment situation is not improving fast enough,” Jyrki Katainen, the European Commission vice president for jobs and growth, said in a statement accompanying a closely watched economic forecast.
Lower-than-expected growth figures for the first half of the year were “mainly due to weakness in some advanced and emerging economies,” Katainen said, “but also the rising geopolitical tensions in Ukraine and the Middle East”.
The European Commission, the executive arm of the EU, said that growth was expected to reach 1.3 per cent in the European Union this year, down from its forecast in the spring of 1.6 per cent across the bloc’s 28 member nations.
The commission slashed growth expectations in the 18-nation euro zone to 0.8 per cent from a forecast in the spring of 1.2 per cent.
The gloomier outlook for both 2014 and 2015 will most likely raise expectations for the European Central Bank to take additional steps to stimulate the economy, though economists said they did not expect policy makers to take action at a meeting on Thursday.
Among the issues facing European economies like Germany is the prospect of a “new cycle of sanctions and countersanctions” related to the economic restrictions that America and the European Union imposed on Russia in retaliation for its intervention in Ukraine, and the reciprocal sanctions applied by Moscow, European Union officials wrote in a report accompanying the figures.
The tensions might also “have triggered a wait-and-see attitude among firms,” the officials wrote in a section of the report that focused on Germany.
Germany is expected to post growth of 1.3 per cent this year, down from an earlier forecast of 1.8 per cent. The French economy is expected to grow 0.3 per cent this year, down from an earlier estimate of 1 per cent. Italy appeared to stand out as a poor performer: Its economy was predicted to shrink 0.4 per cent this year compared with a forecast in May for growth of 0.6 per cent.
The commission also expressed concerns about inflation, which it said would remain very low this year and would not come close to the target of just under 2 per cent anytime soon. It projected an annual inflation rate of 1.6 per cent in the European Union in 2016.
“With confidence indicators declining since midyear and now back to where they were at the end of 2013, and hard data pointing to very weak activity for the rest of the year, it is becoming harder to see the dent in the recovery as the result of temporary factors only,” officials wrote in their report. The commission said it expected growth rates to improve somewhat in 2015, rising to 1.5 per cent in the European Union and to 1.1 per cent in the eurozone.