The Strategist

Pierre Moscovici: Economic growth eased the euro zone debt burden


05/04/2018 - 12:50



Growth rates of the euro area economies in 2017 were the highest in ten years, reaching 2.4%, the European Commission (EC) said yesterday. According to the spring forecast of the EC, this year the growth will slow down to 2.3%, in 2019 - to 2%. European Commissioner for Economic and Financial Affairs Pierre Moscovici believes that the main drivers of growth were investment and improvement of the situation in world trade, which supported demand for exports from the European Union. The EC predicts that, following the improvement in the economy, the unemployment rate this year will drop to 8.4%, in 2019 - to 7.9% (9.1% in 2017).



rockcohen via flickr
rockcohen via flickr
At the same time, countries of the bloc will be able to fulfill the limitation on the size of the budget deficit of 3% for the first time, says Pierre Moscovici (this is required by the stability and growth pact adopted in response to the debt crisis in the euro area). The total amount of the deficit will be 0.7% of GDP in this and 0.6% of GDP in the next year, and public debt will amount up to 86.5% and 84.1% of GDP, respectively, the EC predicts. A high level of debt burden will remain in Italy (about 130% of GDP), although the budget deficit will decrease from 2.3% in 2017 to 1.7% in 2019. In Spain, the debt will decrease from 98.3% to 96% of GDP, and the imbalance in expenditures and budget revenues will decrease from 3.1% to 1.9%.
 
Even Greece exceeded its budget plans, where the primary surplus (before debt service payments) was 4.2% last year, whereas this figure should be no less than 1.75% under an agreement with creditors. Recall that the third program of assistance to the country, which amounted to € 86 billion, will be completed in August this year (the country has so far received € 45 billion in total). It is expected that the fourth and final assessment of fulfillment of the program’s requirements by Greece will be completed by the end of May. So far, the ratio of the country's debt to GDP remains extremely high for the euro area (178.6%), and the indicator should drop to 170% in two years, the EC predicts.

However, the most problematic indicator for the countries of the bloc is inflation, which again slowed in April: without taking into account the prices for food and fuel, the indicator fell to 0.7%, the total figure to 1.2%. "Despite the drop in unemployment - in March, the indicator fell by 0.9 percentage points further, to 8.5% - the price increase is in no hurry to accelerate. Against this background, the ECB will soon announce an increase, rather than a reduction in the quantitative easing program, - ING Bank believes.

source: reuters.com




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