The withered EU recovery

Cyprus will be the only EU country still in recession with a -4.8% growth this year, whereas 11 member states were in the red during 2013, but finally got positive results by 2015 with a 0.9% GDP’s increase. Spain will grow by 1.1% in 2014 and 2.1% in 2015, beating France (1% and 1.5%) as well as Italy (0.6%  and 1.2%).

Spain is not an isolated case. Greece is to grow by 0.6% in current year and by 2.9% in 2015 and Portugal by 1.2%  and 1.5%, respectively. Ireland will speed up to 1.7% this year and 3% in 2015.  The four main victims of crisis- Spain, Greece, Portugal and Ireland- may lead the trend upwards, at least the statistical one. Meanwhile, other more mature economies such as France and Italy are presenting the same growth prospects than 7 months ago.

The exception is called Berlin. Germany leads the EZ’ big countries with a growth by 1.8% this year and 2% by 2015, as the UK also would perform well out of the common currency’s scope with a 2.7% and a 2.5%, respectively. A medium size economy such as Poland is to increase by 3.2%  in 2014 and 3.4% next year.

The European Comission’s theory relies on four grounds: an improvement of internal demand; an increase of consumption after a higher disposable income, lower inflation and a more stabilized labour market; the recovery of investments in public works as well as in capital goods, and finally the reduction of credit markets fragmentation.

Now it is needed that practice follows theory. Sometimes the reality involves variables not considered in mathematical models.

The risk of Ukraine and others

One of the main risks for the European economy are tensions related to the Ukraine crisis. In fact, some EC’s sources insist they are analizing its impact on the 28 countries economy’s growth and also on the relationship with Russia. That is not the same for everyone. Some countries are more exposed than others. Baltic countries such as Finland, or Cyprus, which are most strongly linked to Russia, are also more vulnerable.

Furthermore, the European Comission, though apparently, is not very concerned about the phantom of deflation which according to some analysts is already lurking the European economy around the corner in 2014. Brussels admits that some countries will record negative quarterly inflation rates.

Therefore, between 2014-2016, the EC estimates an yearly inflation average of 1.1%, but in the period 2017-2019, rate could be near 1.7%, very close to the ECB’ s inflation goal of 2%.  The European Commission’ report says that reaching a pure and simple scenario of deflation would be needed a great shock.

France and  its uncontrolled deficit figures could also dangerously affect the whole of the euro zone. At this moment Paris is expected to not meet the goal agreed with the EU for reducing deficit under the 3% threshold, but it would situate at 3.4%.

The major risk for all these growth expectations to go down continues to be the loss of confidence that a stagnancy of reforms could generate. Conversely, adding bold structural reforms could lead to a recovery wider than foreseen.

Generally speaking, the Comission experts think that “differently to 2010’s sharp and short recovery, the current one is geographically more balanced as well includes most of vulnerable countries.”