EU Commission’s revises up European growth forecasts

The European Commission (EC) has revised its Euro area growth forecasts by one tenth p.p. to 1.2% in 2014 and 1.8% in 2015, still below the estimated long term trend of above 2%. Inflation is expected to average 1% in 2014 and 1.3% in 2015. Finally, the unemployment rate forecast has edged down to 12% in 2014 and 11.7% in 2015

This new forecast reflects a mood of cautious optimism over the recovery in the coming months. The Commission refers particularly to expectations of a rise in global trade and of a stronger recovery in the US and some emerging countries. In the EU, the EC takes note of the re-balancing of growth with the recovery in domestic demand, an improvement in the external position in some countries and easier financial conditions. On the downside, the EC is concerned that growth may remain weak for a protracted period, particularly  should economic reform lag behind, or should financing conditions be affected by lower than expected inflation or weak credit growth.

In the case of Portugal, the EC has left the forecast broadly unchanged since the fall given that it has not incorporated the new information about Q4 GDP growth. Unless there is a significant change on current trends, we would expect the spring forecast to show a 0.2 p.p. revision of 2014 GDP growth to 1%. For 2015, the EC expected growth of 1.5%, which could also be subjected to an upward revision.

The EC will next publish its revised forecasts in May.