The Wall Street Journal reports, European Union economists on Tuesday forecast tepid growth for most of the region through 2015, while warning that lingering debt burdens and the specter of deflation could sabotage the recovery.
The forecasts, published by economists at the European Commission, see a mild recovery over the next two years. The impact of budget austerity, a major drag on growth since the euro-zone debt crisis flared in 2009, is expected to fade this year. Meanwhile, policy overhauls in the euro zone's weaker economies are starting to bear fruit, helping to boost their export sectors, the commission said.
Growth in the euro area is forecast at 1.2% this year and 1.8% next, after two consecutive years of contraction. That won't be enough to make much of a dent in euro-zone unemployment, which is seen hovering near record highs of 12% in 2014 and 11.7% in 2015. The commission report forecasts growth in the broader EU—buoyed by strong momentum in the U.K.—at 1.5% this year and 2% next.
But the tepid recovery faces some daunting obstacles. Debt owed by governments, households, businesses and banks remains too high in many of the bloc's countries, the commission report says. And low inflation in the euro zone, or even the threat of outright deflation, threatens to make the debt problems even worse.
"Much depends on the stability of inflation expectations for the medium term," said Marco Buti, the director general of the commission's economics division. "Should they shift lower, the corresponding increase of real interest rates and the debt burden would make it harder for growth to accelerate."
The commission forecasts inflation in the euro zone at 1% this year and 1.3% next, well below the European Central Bank's target of just under 2%.
The commission's thrice-annual forecasts serve as a guide for how much austerity governments are expected to undertake to meet the EU's budget rules, which generally require budget deficits under 3% of gross domestic product. While the bloc's overall budget is seen falling below that level this year, some of the biggest euro-zone countries still have to work to do this year to meet their targets.
