17 March 2016, 13:32
Global economic growth further decelerated in 2015 to +3%, after +3.3% in 2014. Growth prospects have deteriorated sharply for countries in the Middle East, Northern Africa and Sub-Saharan Africa. The slowdown has also turned towards major recessions for a number of countries such as Brazil and Russia. Nevertheless, the US economy remains resilient. This was also the case for the European economy which is now entering its fourth year of recovery, and growth continues at a moderate rate, driven mainly by consumption. At the same time, much of the world economy is still grappling with major challenges, and as a result, risks remain to further growth in Europe.
Growth within the euro zone approached 1.5% in 2015, after 0.9% growth in 2014, following two years (2012 and 2013) of recession. All countries within the monetary union (except Greece) have seen growth in their economies, with the strongest expansion being observed in Ireland, Malta, Slovakia and Spain.
Private consumption recorded its strongest growth last year since 2007. It was supported by a rise in real disposable incomes attributable to a fall in headline inflation and improved labour market conditions. Government consumption in 2015 was more supportive towards growth than expected in the autumn, despite security measures and refugee-related expenditures in some countries, which resulted in additional fiscal expenditures.
2015 was also a year marked by falling oil prices, significantly increasing the purchasing power of household incomes. The price of Brent reached 36.5 dollars a barrel by the end of 2015, the lowest level since 2008. This major drop in oil prices explains the fragility of the situation in producing countries, including Saudi Arabia, Algeria, Nigeria, and also Venezuela and Russia, where massive public deficits have been recorded. A similar trend has been observed for almost all commodity prices in 2015 (for example, -59% for the price of scrap iron, -30% for zinc, and -42% for nickel).
So far, investment has failed to emerge as a strong driver of recovery, having been held back by the slowdown in growth outside of the EU, and a high level of economic and political uncertainty. Currently, investment levels are also not reflecting changes in financing conditions. The deterioration in markets outside of Europe started to have a visible impact on euro area exports in the second half of 2015, offsetting the positive impact of the euro’s depreciation. However, foreign
demand still contributed positively to growth. While imports grew faster than exports, the current account surplus within the euro area reached a new record, reflecting a combination of falling import prices, a depreciation of the exchange rate and subdued domestic demand.
With energy prices falling sharply, inflation in the euro area struggled to rise much above zero by the end of 2015. Overall, inflation has remained below expectations, with a risk of deflation setting in across the whole euro area. While the inflation rate reached a low of -0.6% in January 2015, the overall rate for the year stayed slightly positive. Consumer prices remained largely unchanged in 2015. In contrast, wages continued to rise and unemployment fell, reaching 10.5% in December 2015 compared with 11.5% a year earlier - a move in the right direction.
The European Central Bank decided to apply further easing of monetary policy in 2015, given subdued inflationary pressures, with the hope of stimulating the real economy. The combination of quantitative easing and credit easing by the ECB has successfully kept financing costs and yields at low levels, and as a result, has helped to reduce financial fragmentation and differences amongst Member States. Credit available in the private sector has been rising since early 2015. Within Europe, risks remain to further economic recovery. Any unexpected relapse into crisis in Greece could impact heavily on investment decisions and economic growth. Moreover, if major political challenges are not handled successfully within the EU (e.g. handling of migration flows), this could trigger developments that limit future growth.
Source: CECE