The euro area economy:

an update

February 2014

Delegation of the European Union to the United States

www.euro-challenge.org
 1. The recovery is gaining ground

Growth map, EU On an annual basis, real

GDP growth this year is
estimated at 1.5% in the EU
and 1.2% in the euro area.

Economic growth is forecast

to gradually gather pace, to
2% in the EU and 1.8 % the
euro area in 2015.

Note:
financial conditions have
been improving
inflation will remain low
diversity of situations across
Member states.
Source: European Commission, Winter forecast, Feb 2014
 2. Inflation is low

Inflation is forecast at an
Inflation, EU annual rate of 1.2% in the EU
and 1% in the EA in 2014, and
at 1% in the EU and 1.3% in
5 % the EA in 2015.
4 forecast
This is consistent with a very
3
slow recovery in economic
2
activity.
1

0
It is possible to see lower
monthly inflation rates in the
-1
07 08 09 10 11 12 13 14 15 near term (for instance, see
Energy and unprocessed food [pps.]
Other components (core inflation) [pps.]
the latest flash estimate by
HICP, all items Eurostat for February 2014:
0.8%).
Source: European Commission, Winter forecast, Feb 2014
 3. Amidst a more supportive external
environment

World trade and global manufacturing output

After the financial and
economic crisis of 2008-
09, the global economy
25 y-o-y% 3-month moving average
started to recover in 2010-
20 70
11, but weakened again
15 and is now starting to
10 60 strengthen.
5
Historically, recoveries
0 50
following financial crises
-5
tend to be protracted.
World trade volume, CPB data (lhs)
-10 40
Global PMI manufacturing output (rhs)
-15 Global trade is slowly
-20 30
recovering.
08 09 10 11 12 13 14

Source: European Commission, Winter forecast, Feb 2014

 4. Confidence is returning

Economic actors are becoming more

positive
Surveys have improved
substantially, from September
105 index 2013 back above the long term
average.
100

Manufacturing and services

95 output has expanded and
leading indicators continue to
90
signal expansion.

85
Confidence readings have also
been encouraging in vulnerable
80
12 13 14
Member States.
EU Euro area Vulnerable countries
(ES, IT, EL, PT)

Source: European Commission

 5. Financial market tensions have eased

Assistance to Euro area

Ten-year government-bond yields, countries continued; the
selected euro-area Member States European Central Bank
continued to play a large role.
8 %
DE ES
Confidence has been
FR IT strengthening in financial
6
UK markets and fiscal/economic
adjustment continues; interest
4 rates on government bonds of
vulnerable euro area countries
2 continued to decline.

European stock markets have

0
09 10 11 12 13 14
also stabilized.

Source: European Commission

 6. Bank lending to the real economy must still improve

Credit standards and credit demand for Divergence in lending

loans to non-financial corporations in conditions and volumes
the euro area across the euro area is
slowly being reduced.
balance balance
60 110
Overall, demand for
40 90
tightening easing credit remains weak.
20 70
Credit growth is important
0 50
for the recovery, so there
-20 30
10
is still scope for further
-40
-60 -10
improvement.
-80 decrease increase -30
-100 -50 The latest ECB bank
03 04 05 06 07 08 09 10 11 12 13 14 lending survey of October
Credit standards - past three months (lhs) suggests less tight credit
Credit standards - next three months (lhs)
standards and a slower
Credit demand - past three months (rhs)
decline in demand for
Credit demand - next three months (rhs)
enterprises.

Source: ECB bank lending survey

 7. Unemployment remains unacceptably high

Employment growth and unemployment rate,

EU The unemployment rate
has stabilized at a high
level: at 12% in the EA and
10.8% in the EU.

Employment growth is
expected to recover with a
lag (2015: 11.7% in EA,
10.4% in EU).

There are huge

differences between
countries unemployment
rates, which ranged in
January from an expected
low of 4.9% in Austria to a
high of 28% in Greece.
Source: European Commission, Winter forecast, Feb 2014
 8. Rebalancing continues within the euro area

Current-account balances, euro area and Member States CA surpluses

increased in 2013

Significant
adjustments have
taken place:

Increased exports
Improved
competitiveness
Still, adjustments
have further to go

Source: European Commission, Winter forecast, Feb. 2014

 9. Public finances improving since 2011

Governments are bringing their spending in line with revenues, the pace of
consolidation is slowing down compared to the previous years

Government debt is on a path to stabilize in 2014 and then decline gradually

Revenues and expenditure in the EU General government budget balance, EU

Source: European Commission, Winter forecast, Feb. 2014

Thank you for your attention!

ec.europa.eu/dgs/economy_fi
nance/index_en.htm
(Brussels)

www.ecb.int (Frankfurt)

euintheus.org (Washington)