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Quarterly Economic Report – Q4 2015

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  • Q4 2015 national account figures revealed that no EU countries experienced recession in 2015. The fastest growing economy in 2015 was Malta (4.9%) followed by Luxembourg (4.7%), while the lowest were Greece (zero growth) and Italy (0.6%).
  • Economic growth did not gain momentum in Q4 2015 on a quarterly basis, with very modest growth rates in all major EU economies, i.e. 0.3% in the EU28 and Germany, 0.2% in France and 0.1% in Italy. There are growing fears of a deterioration in the macroeconomic environment, risks of continuing deflation despite unprecedented ECB action and several factors of uncertainty that have cast a shadow on growth prospects for 2016. Supportive external factors (oil prices, quantitative easing, EUR devaluation) have yet to boost economic growth as expected. Domestic demand (private consumption and investment) in the EU remains weak compared to the powerful monetary policy stimulus.
  • In Q4, the macroeconomic environment in the EU continued to benefit from: record lows in oil prices (on 22 February, the price of Brent Europe fell by 69.2% in nominal terms compared to 14 June 2015, -76.7% to the all-time peak of Jul 2008); the ECB’s Asset Purchase Programme (“Quantitative Easing”) which is continuing (the next ECB Governing Council Meeting on 10 March is expected to announce a set of additional measures to stimulate asset price increases and economic growth, as the deflationary picture is persisting and likely to continue in 2016); nominal EUR/USD exchange rate declining, i.e. down to 1.08 at end Feb 16 (-20% since June 14) despite some recent appreciation of the USD due to the FED policy rate hike of 250 basis points; and lower-than-ever interest rates (even negative) due to hyper-expansionary ECB action complete the picture.
  • However, a gloomier economic picture may be coming next: there were worrying signs in Q4 2015, such as a slowdown in Chinese GDP growth, coupled with repeated Shanghai stock exchange plunges in Jan 2016 and sharp CNY devaluation, Brazil and Russia were in a deep recession in 2015 (with real GDP falls of 3% and 3.8% respectively), and slowing global trade as well as external demand. The oil price bonanza is beneficial for EU industry, but much less so for EU exports, as it means lower demand from commodity-producing countries (Brazil, Venezuela, Russia) and current oil prices are likely to prove rather destabilising for these countries, thus hampering global economic growth. Last but not least, growing geopolitical tensions (Syria, Libya, IS threat), as well as some political uncertainty on the future of the EU (possible Brexit, inflow of refugees etc) contribute to feeding economic uncertainty.
  • Recent falls in many European stock exchange markets in January 2016 confirmed expectations of a European and global economic slowdown, despite certainty of unprecedented expansionary monetary policy to continue. However, these falls were partly the result of a correction from strong rallies recorded over Q4 2015 and were also excessively steep compared to macroeconomic fundamentals.
  • As a result, the latest EC Economic Forecast (Winter Forecast, released in February 2016) revised its growth predictions downwards for most developed economies (see Table 1), and so did the latest economic forecasts issued by the IMF and OECD.
  • The inflation rate remained well below the ECB target (2%) at 0.3% in January 2016, and was even negative (-0.2%, provisional figure) in the euro area in February 2016, with the latest negative yearly rate of change of the Harmonised Index of Consumer Prices (HICP) in the euro area being in September 2015. The inflation rate was also negative in many other EU countries (Bulgaria, Greece, Spain). The QE has so far proved ineffective in raising inflation rates above zero, and there is growing consensus about the fact that both the ECB and Member States need to put in place additional measures to stimulate inflation. Unemployment rates remained very high according to the latest data available (December 2015), declining very slowly in Spain (20.8%): 9% in the EU, 10.4% in the euro area.
  • In February 2016, the EU Economic Sentiment Indicator (ESI) was 105.2 and has been slightly declining since December 2015, reflecting the fact that businesses and consumers have perceived the signals of deteriorating macroeconomic environment. However, it is still higher than a year ago (104.7)1.

The full report is available from here



1 For more information, see http://ec.europa.eu/economy_finance/db_indicators/surveys/index_en.htm