European Commission downgrades 2015 forecasts

The EU Commission Autumn forecast shows a significant downgrade in 2015 GDP growth projections for the Euro Area to 1.1% from 1.7% in the Spring. German GDP is now expected to slow down from 1.3% in 2014 to 1.1% in 2015, French GDP is expected to edge up only to 0.7% in 2015 after 0.3% in 2014 and Italian GDP is seen leaving recession territory but growing only 0.6% in 2015. Looking at prices, inflation is projected to rise from 0.5% this year to 0.8% in 2015, still far from the ECB’s target of close to 2%.

Today’s release is likely to fuel the debate about further ECB intervention, ahead of the meeting on Thursday. So far, the ECB has avoided buying Government Bonds, although President Draghi has repeatedly stated that the ECB will do all it takes to take inflation expectations back to close to 2%. Still, there is a sense that further monetary intervention may have a limited impact (the take-up of the recent quantitative operations was relatively low) and that the quality of the ECB’s balance sheet has deteriorated far too much during this crisis. As a result, we don’t expect any further measures to be announced this week.

In the case of Portugal, the EU Commission forecasts GDP to grow 0.9% this year and 1.3% in 2015, a little below the Government’s forecasts of 1% and 1.5%. The largest discrepancy is on the deficit, as the Budget plans for 2.7% of GDP and the Commission expects 3.3%, due to more conservative expectations regarding revenue collection.