Economic growth for all member states for the first time since 2008, but no improvement for those mostly affected by the crisis

On Monday this week, the European Commission published this year's European Winter Economic Forecast by the Directorate General of Economic and Financial Affairs (DG ECFIN). This report projects key economic developments of the Union and the Member States on the basis of current data for 2016, 2017 and 2018. Small growth and more employment are projected for the EU’s future economy, the effects of the crisis, however, are still not overcome for everyone.

The Commission cautiously optimistic when it comes to the Union’ level as a whole – for the first time since 2008, positive economic growth has been forecast for all Member States. For 2017, an overall level of 1.6 % (AUT: 1.6 %), by 2018 1.8 % (AUT: 1.6 %) of GDP-growth is possible. The driving forces behind this growth are still the low oil prices, the low euro exchange rate and the fiscal measures of the ECB. The driving forces within Europe, however, are not investments, as proposed by the EFSI (Juncker Plan). Rather, a large share of the economy’s growth are attributable to private consumption. The increased consumers’ purchasing power is derives from both the slight drop in the unemployment rate (to 9.6 % within the EU, in December 2016) and the higher employment rate affiliated with it. What is more, also national debts and public deficits are going to be reduced because of the increased employment rate, the reduced expenditure for social benefits and other austerity measures associated with it.

Even the Commission’s report is cautious. Admittedly, there were some signs of relaxation, it’s underlying factors, however, would not lead to long term growth and subsequently not be able to create a genuine economic recovery, which would be equally beneficial for all EU-citizens. Looking at the economic development of the Union, further heterogeneity between the individual Member States is possible. The level of unemployment within the EU remains too high: half of all unemployed people are long-term unemployed and also the high rates of youth unemployment have hardly fallen. Facing rising rates of inflation and increasing housing costs (at least at an Austrian level) the low growth levels will not lead to a higher per capita income. The Commission projects within extraordinarily high levels of uncertainties, as neither the effects of the Brexit, the new US Administration or the upcoming national elections in the most populous Member States, are certain yet. Such an uncertain environment, however, will not drive an adequate number of future-oriented private investments.

By now, the crisis in the Union has persisted for nine years. According to the Chamber of Labour the pursued path of austerity policy is to blame for this slow recovery – an accusation which has also been recently proven in a study by the economists Bibow and Flassbeck, which was carried out for the AK and the ÖGB. It is high time to change direction. In times where everybody is saving, the state has to invest in order to actively promote demand. The AK’s Golden Investment Rule should finally be put into practice. As a part of a systematically different mix of economic, social and environmental policies, which is proposed by the alternative annual growth survey, this rule and its aligned active support of demand have the ability to improve the wellbeing for everyone.

Further information:

European Economic Forecast – Winter 2017 (English)

Annual growth survey der European Commission 2017 (English)

Alternative annual growth survey (English)

More about EFSI

More about European austerity policy

More on the Golden Investment Rule