Return to growth expected for all EU economies

For the first time since the financial crisis, the economies of all the EU member states are forecast to expand this year, says a World Bank report.

Economic expansion is set for all of the European Union’s (EU’s) economies in 2015 for the first time since the financial crisis. The growth will be driven higher by a variety of factors including low oil prices, a weaker euro and the European Central Bank’s government bond buying scheme, according to a new World Bank report

Furthermore, a rise in household spending will sweep across Europe as wages rise and energy prices remain low, according to the new EU Regular Economic Report launched today in Brussels by the World Bank. However, the Greek debt crisis and the ongoing conflict in Ukraine has yet to be resolved, despite a ceasefire coming into effect in February.

Despite this, the World Bank’s projections point towards growth of 1.5 per cent in 2015 and 1.8 per cent next year for the euro area, meanwhile growth for the whole of the EU is forecast at 1.8 per cent and two per cent in 2015 and 2016, respectively.

“The medium and long-term challenge in many countries is to shift policy from fiscal and macroeconomic adjustment towards structural measures to promote growth and competitiveness,” said Theo Thomas, coauthor and lead economist in the World Bank’s Europe and Central Asia region.

He continued to advise on directing efforts towards continuing labour market reforms, enhancing the business environment, further removing barriers to trade, and driving job creation and innovation.

Central and eastern European countries (EU-CEE) will remain growing at a rate above the European average, with growth for this year forecast at 2.4 per cent. Strong consumer demand is expected to be a key contributing factor behind the steady growth, while others include the gradual return of investment and continued export growth.

“Exports have been the main driver of growth in many EU-CEE countries, such as Poland, Bulgaria, and Romania,” said Mamta Murthi, World Bank country director for Central Europe and the Baltic Countries.

She then pointed out that the decline in foreign direct investment (FDI) since the crisis means that countries should focus on encouraging innovation, investing in infrastructure and encourage renewed FDI by reducing regulatory barriers.

However, amongst all the optimism was a note of caution as the report says that several risks need to be carefully managed. The divergent monetary policy between the EU and US risks an increase in financial market volatility; low inflation and modest growth could pressure public finances; incomplete bank reforms and low returns could limit new lending; and the potential negative impacts from the Greek and Ukraine crises.