Transcript European Economic Forecast – Winter 2015 Marco Buti, Director General DG ECFIN EPC Policy Dialogue Brussels, 24 February 2015

European Economic Forecast –
Winter 2015
Marco Buti, Director General DG ECFIN
EPC Policy Dialogue
Brussels, 24 February 2015
Forecast in a snapshot
Real GDP
Inflation
2013
2014
2015
2016
2013
0.1
1.5
1.5
2.0
1.6
0.8
Spain
-1.2
1.4
2.3
2.5
1.5
France
0.3
0.4
1.0
1.8
Italy
-1.9
-0.5
0.6
P o rtugal
-1.4
1.0
1.6
- 0 .5
0 .8
1.3
1.7
3 .3
1.7
Germany
E uro a re a
P o land
United Kingdo m
2014 2015
Unemployment rate
2016
2013
2014
2015
2016
0.1
1.6
5.2
5.0
4.9
4.8
-0.2
-1.0
1.1
26.1
24.3
22.5
20.7
1.0
0.6
0.0
1.0
10.3
10.3
10.4
10.2
1.3
1.3
0.2
-0.3
1.5
12.2
12.8
12.8
12.6
1.7
0.4
-0.2
0.1
1.1
16.4
14.2
13.4
12.6
1.9
1.4
0 .4
- 0 .1
1.3
12 .0
11.6
11.2
10 .6
3 .2
3 .4
0.8
0.1
-0.2
1.4
10.3
9.1
8.8
8.3
2.6
2.6
2.4
2.6
1.5
1.0
1.6
7.6
6.3
5.6
5.4
0 .2
1.4
10 .8
10 .2
9 .8
9 .3
EU
0 .0
1.3
1.7
2 .1
1.5
0 .6
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
Japan
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
6.9
2.6
2.3
2.5
3.0
:
:
:
:
7.1
 Very gradual and uneven recovery
2
Steep fall in oil prices
Brent oil spot prices (USD/€)
130
price per bbl
USD/bbl
110
90
EUR/bbl
70
50
30
12
13
14
15
 How large is the bonus?
3
Monetary policy has eased further, and
financial fragmentation has receded
10-year government bond
spreads
Long term inflation
expectations
Inflation expectations 10 years forward 10 years ahead
24
36
(level)
Inflation expectations 3 years forward 3 years ahead
18
12
6
0
09
08
IT
Inflation expectations 5 years forward 5 years ahead
10
ES
11
PT
13
12
IE
14
30
3
24
2.5
18
2
12
1.5
6
1
0
0.5
Inflation expectations 1 year forward 1 year ahead
15
EL (right scale)
0
01/12
07/12
01/13
07/13
 QE effects may surprise on the upside
01/14
07/14
01/15
4
Euro has depreciated against major peers
Euro exchange rates, USD
and JPY
(level)
(level)
1.6
180
monthly averages (% change March - December 2014)
8 %
170
6
160
1.5
150
1.4
140
1.3
130
1.2
1.1
1.0
07
08
09
10
11
12
13
14
15
4
REER
2
0
120
-2
110
-4
100
-6
90
06
NEER
LV
LT
EE
FI
SI
LU
AT
SK
DE
BE
NL
PT
MT
IT
FR
ES
EL
CY
IE
EA19
1.7
USD/EUR (left scale)
JPY/EUR (right scale)
Real and nominal effective
exchange rate
 Who will benefit most?
5
Fiscal stance neutral in aggregate is
appropriate
2
Budgetary developments, EU
% points
% of GDP
2
1
1
0
0
-1
-1
-2
-2
-3
-3
forecast
-4
-4
-5
General goverment balance (left scale)
-5
-6
Change in structural balance (right scale)
-6
-7
-7
09
10
11
12
13
14
15
16
 Composition and distribution not optimal
6
Policy measures and lower oil prices
stimulating domestic demand
Real GDP growth and its components, EU
Net exports
Investment
Private consumption
3.5
2.5
1.5
0.5
-0.5
-1.5
-2.5
-3.5
-4.5
-5.5
Inventories
Government consumption
GDP (year on year % change)
% points
forecast
07
08
09
10
11
12
13
14
15
 Though still subdued
16
7
Energy prices drive the fall in inflation
HICP and sub-components, EU
Energy and unprocessed food [% points]
Other components (core inflation) [% points]
HICP, all items
5
year on year % change
4
forecast
3
2
1
0
-1
07
08
09
10
11
12
13
14
15
16
 ECB`s move reduces the risk of a debt-deflationary trap8
Unemployment slowly declining, but still high
Employment growth and unemployment rate, EU
Employment (quarter on quarter % change, left
scale), forecast (year on year % change, left scale)
Unemployment rate (right scale)
% of the labour
%
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
11
10
forecast
9
8
7
6
07
08
09
10
11
12
13
14
15
16
Forecast figures are annual data.
 Past reforms start to pay off
9
Current-account rebalancing, still
lopsided
Current-account balance, EU
10
% of GDP
5
0
-5
-10
2008
2015
-15
DE
LU
NL
AT
FI
BE
EA
FR
IT
MT
SI
IE
SK
EE
ES
PT
LV
CY
LT
EL
-20
 "In the long run, we`re all … in surplus". Or are we?
10
Structural reforms needed to boost
growth and facilitate rebalancing
Strictness of EPL (regular contracts)
Strictness of EPL (regular contracts)
 Enhance reform responsiveness across the board
Risks to the growth outlook:
increased in both directions
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 12
Key messages
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
13
Thank you for your attention