European Report Card: Worries Over Eurozone Growth, Greece and ‘Brexit’

With growth slowing and the region facing a wide array of challenges — from the long-running Greek debt crisis to the possibility of a British exit from the European Union — the European Commission, the 28-nation bloc’s executive arm, warned on Tuesday of “high risks” and “substantial uncertainty” in the economy.

Here are some highlights from the commission’s latest forecast:

The European Economy

“The recovery in the euro area remains uneven, both between member states and between the weakest and the strongest in society. That is unacceptable and requires determined action from governments, both individually and collectively.”

— Pierre Moscovici, European commissioner for economic and financial affairs, in a statement on Tuesday

Output in the eurozone, the 19-country currency union, is finally back to levels reached in the early months of 2008, before the financial and debt crises emerged. But a slowdown in China, the European Union’s second-largest trading partner behind the United States, makes export growth an uncertain prospect. Low inflation, or even periodic falling prices in the eurozone, has also stoked fears that the region could suffer a lost decade, while many of the Continent’s people are also grappling with widespread unemployment and falling wages.

On Tuesday, the commission lowered its growth estimates for the euro area for this year and next. Gross domestic product is expected to advance 1.6 percent in 2016 and 1.8 percent next year, compared with a previous forecast in February of 1.7 percent this year and 1.9 percent in 2017. The commission also lowered its forecast for economic growth in the broader European Union, now expected to hit 1.8 percent this year and 1.9 percent in 2017.

Greece’s Debt Crisis

“Following stronger-than-expected public finances in 2015 and the additional fiscal package currently finalized by the authorities, the general government balance is expected to improve further.”

— European Commission report

There have been signs that the Greek economy has bottomed out, and the commission’s assessment is comparatively rosier for the country. In February, the commission forecast that Greece’s economy would shrink 0.7 percent this year and grow 2.7 percent in 2017. On Tuesday, it predicted the decline this year would be a less-severe 0.3 percent, and it held firm to its forecast for 2017.

Despite those forecasts, there are still challenges. Political instability has made it difficult for Greece’s left-wing government to carry out changes needed to improve the climate for business, and there is also the threat that Athens could default on its debts this summer unless it receives more bailout aid. For many Greeks, the economic situation remains dire. Output has fallen by more than a quarter since 2010, around 25 percent of the work force is unemployed, and about half of all bank loans are in default.

The Impact of ‘Brexit’

“The commission made all its effort to contribute to solutions that hopefully will lead to the United Kingdom remaining in the European Union.”

— Mr. Moscovici, in a news conference on Tuesday

A slew of reports have warned that a vote by Britain on June 23 in favor of a departure from the European Union, a so-called Brexit, would have serious economic costs for the country, including a drop in growth and exports. Experts predict a period of uncertainty, particularly over the future of Britain’s free trade arrangements with the rest of the bloc. British companies currently enjoy automatic access to the European Union’s single market. A vote to leave the bloc could also encourage other countries to consider that path, threatening the European Union with fragmentation.

In February, the commission predicted that Britain would grow 2.1 percent in 2016, and the same amount next year. Its latest forecasts, however, are sharply lower, with the country now expected to grow only 1.8 percent this year, and 1.9 percent in 2017.

Germany’s Vulnerability

“Public spending on asylum seekers implies a lower budget balance for the general government, which will support growth. The current account surplus is expected to remain very high.”

— European Commission spring forecast

A slowdown in emerging markets has left Germany, the eurozone’s biggest economy, looking vulnerable. If German manufacturers remain wary and confidence in the economy remains weak, companies may cut back on investment or hiring, pushing growth closer to the lackluster eurozone average of about 1 percent. On Tuesday, the commission cut its forecasts this year and next for Germany by 0.2 of a percentage point, predicting advancement of 1.6 percent in both years.

Germany also has significant savings that could be invested in infrastructure projects, providing stimulus to the domestic and wider European economy. But Germany has been reluctant to countenance such spending, and the country’s leaders have been unwilling to allow other European states to run larger deficits. Some economists say that has exacerbated the painful effects of austerity policies enacted over the past six years across the region.

Europe’s Migration Crisis

“We note a positive impact, which has been confirmed.”

— Mr. Moscovici, on the economic effects across Europe of hosting asylum seekers, at a news conference on Tuesday

In September, the commission’s president, Jean-Claude Juncker, said migration could be an antidote to looming labor woes in Europe, where an aging population threatens economic growth. In its autumn forecast, officials predicted that the three million migrants expected over the next three years would provide at least a small lift — a net gain to the European economy of perhaps a quarter of 1 percent by 2017.

Compliments of the New York Times