EU Raises Eurozone Growth Forecasts

By Matthew Dalton 

        BRUSSELS--The European Union's official economists said the sharp drop in global oil prices and a weaker euro should boost growth in the eurozone this year, raising their forecasts for the currency area's largest economies.
        The developments are a lucky jolt for a region facing the prospect of long-term economic stagnation, as Europe is still trying to heal the wounds of the sovereign debt crisis. But the forecasts, published on Thursday, don't account for the threat that the crisis could return in full force now that the eurozone is again headed for a showdown with Greece, which is asking the bloc's other members to rewrite the bailout plan they signed with Athens.
        The cutoff date for the forecasts is Jan. 23. The left-wing Syriza party was swept to victory in the Greek elections two days later on a platform of getting Greece's official creditors to loosen austerity mandates on the country and restructure its debt. So far, Germany and others eurozone nations have refused. The commission did lower its forecasts of Greek growth, saying the decision to call early elections had hurt confidence.
        The economists at the European Commission, the EU's executive arm, said the eurozone should grow 1.3% this year and 1.9% in 2016. In November, they expected growth of 1.1% this year and 1.7% next. The commission raised its growth estimates for most of Europe's largest economies, including Germany, France and Spain.
        "Europe's economic outlook is a little brighter today than when we presented our last forecasts," said Pierre Moscovici, the European economics commissioner. "The fall in oil prices and the cheaper euro are providing a welcome shot in the arm for the EU economy."
        The forecasts, published three times a year, serve as the foundation for which many of the bloc's economic decisions, particularly on national budgets, are made.
        But warning lights are still flashing, the commission said. Falling oil prices are going to push already very low inflation in the euro area into outright deflation, with prices expected to fall 0.1% for the year. The European Central Bank has announced plans to buy hundreds of billions of euros in government bonds and other assets to prevent deflation from becoming entrenched.
        The unemployment rate is also expected to remain over 11% this year and at 10.6% next year, still near record highs for the currency area. And the forecast sees investment by companies and the public sector remaining weak.
        The commission cut its estimates for the Greek economy. Growth is expected at 2.5% this year, down from a November estimate of 2.9%. "The growth momentum was fairly firm in the second half of 2014, although the early election has affected confidence and investment," the commission said.
        (END) Dow Jones Newswires

        February 05, 2015 05:13 ET (10:13 GMT)

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