BUSINESS

EU slashes economic forecasts for due to weakness in France and Germany

11/04/2014 05:39 EST | Updated 01/04/2015 05:59 EST
BRUSSELS - The European Union cut its already low economic growth forecasts further on Tuesday, indicating the recovery will remain sluggish amid problems for the bigger countries, particularly France and Germany.

The official forecast for growth this year in the 18-country eurozone was cut to 0.8 per cent from a prediction of 1.2 per cent made in the spring. Indicating little good was expected next year too, it reduced the 2015 prediction from 1.7 per cent to 1.1 per cent.

"The situation in the euro area remains extremely fragile," said German Chancellor Angela Merkel.

Unemployment in the currency union was forecast to decrease at a painfully slow rate — after 11.6 per cent this year, it is expected to dip to 11.3 per cent next year and 10.8 per cent in 2016.

The broader 28-nation EU, which includes non-euro members like Britain and Sweden, was expected to grow 1.3 per cent this year from a previous 1.6 per cent forecast.

To help speed up the recovery, EU Financial Affairs Commissioner Pierre Moscovici said the bloc should focus on spending on special projects, for which the EU Commission has a 300 billion euro ($375 billion) plan.

He said the plan would be presented to the EU parliament before the end of the year. "There is a real sense of urgency."

The economic weakness stems in particular from a poor performance in Europe's larger countries, with the exceptions of Spain and Britain.

GERMANY

The EU Commission sees growth this year "coming to a stop in Germany after a very strong first quarter."

That is expected to be only temporary, however, with Europe's largest economy forecast to grow again next year "with the support of a robust labour market, favourable financing conditions and improving external demand." Unemployment is expected to be 5.1 per cent in 2014.

Some say Germany should spend more to boost growth because it has the public finances to do so.

Merkel acknowledged the need for more investment, but stressed that her government doesn't believe it should be done "on credit" and defended her drive for budget discipline. "Public investment and private investment must go hand in hand," she said.

FRANCE

France, Europe's second biggest economy, has been under pressure for years to improve its performance but the EU said that growth is forecast to remain low in 2014 and 2015. Unemployment is seen increasing to 10.4 per cent this year.

"Short-term indicators do not suggest that a firm recovery is imminent," the EU report said.

France has run into trouble with the EU over its high deficit. It should not expect quick turnaround. The EU predicts France's budget deficit will continue to rise, hitting 4.7 per cent of GDP in 2016, to become the biggest in the eurozone.

Finance Minister Michel Sapin said France must work together with its EU partners "to answer together a crucial question: how to regain, as quickly as possible, more growth and jobs."

BRITAIN

So often an outsider in EU matters, Britain will be happy to keep to that role with better economic forecasts than most other countries.

Its growth is forecast at 3.1 per cent this year and predicted to accelerate. Unemployment is set to stay on a downward trend, moving from 6.2 per cent this year to 5.5 per cent in 2016.

CRISIS COUNTRIES

Many of the countries that were hit hardest by the financial crisis, mostly in southern Europe, had mostly improved forecasts.

Spain should see growth accelerate to 1.7 per cent next year, but joblessness would remain sky high at 24.8 per cent this year before dropping slightly. Greece is expected to return to growth with a 0.6 per cent expansion this year and 3.7 per cent in 2016, compared with a drop of 8.9 per cent in 2011.

Ireland, which needed an international bailout ion 2010, is now set to become the fastest growing economy in the EU, with growth slated at 4.6 per cent this year.

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Associated Press writers Geir Moulson in Berlin and Greg Keller in Paris contributed to this report.

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Raf Casert can be followed on Twitter at http://www.twitter.com/rcasert