World Bank: EU’s recovery is strengthening, but slowly and with significant risks

Written by on June 11, 2015 in Europe - Comments Off on World Bank: EU’s recovery is strengthening, but slowly and with significant risks

Economic growth is expected to continue to pick up across the European Union (EU), from zero in 2013 and 1.3 per cent in 2014, to 1.8 per cent and two per cent in 2015 and 2016, respectively, according to a new World Bank EU regular economic report.

Most Central and Eastern European countries (EU-CEE) will continue to grow above the European average, with growth expanding over 2.4 per cent in 2015, based on robust consumer demand, the gradual return of investment, and continued export growth, according to the new report, released on June 10 in Zagreb.

The pick-up in 2014 was particularly strong in Germany, Hungary, Ireland, Poland, and the United Kingdom, while southern European countries finally returned to growth following significant financial and economic restructuring, and despite growing concerns about financial strains in Greece and generally weak global trade.

“Exports have been the main driver of growth in many EU-CEE countries, such as Poland, Bulgaria, Romania and to a lesser extent in Croatia,” said Theo Thomas, lead economist in the World Bank’s Europe and Central Asia region and team leader of the EU regular economic report.

“That has been partly due to foreign direct investment (FDI) helping countries integrate into global value chains and ‘push’ exports. However, as FDI has declined following the crisis, there is now greater need for countries to focus on improving business environments, developing skills, encouraging innovation, investing in infrastructure, and reducing regulatory barriers to encourage renewed FDI and export growth.”

According to the report, strengthening economic growth and improvements at the labour market will help to limit the share of people at risk of poverty and social exclusion.

Since 2008, the EU-CEE share of people at risk of poverty increased to more than 23 per cent, as slower growth resulted in job losses, especially among the young and less skilled, pushing them below the poverty line.

Looking ahead, the report says that economic recovery and reduction in unemployment rates, along with increased fiscal space for social expenditures in some EU-CEE countries, will lead to the gradual decline in poverty.

While the growth outlook for Europe is moderately optimistic, fueled by the one-off fall in oil prices and ECB quantitative easing, the report says that several risks need to be carefully managed.

These risks include the potential increase in financial market volatility as the US and EU implement divergent monetary policy, fresh pressure on public finances from the combination of low inflation and modest growth, the limited availability of new lending for investment, due to low returns and incomplete bank reforms; and the potentially negative impact on confidence stemming from ongoing financial strains in Greece or ongoing geopolitical tensions in Ukraine.

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