European Commission cuts forecast for euro zone GDP growth

Ireland's economic growth will be weaker than expected next year, in line with slower- than-expected gross domestic product growth across the euro zone, the European Commission said yesterday.

In its closely watched autumn economic forecast, the European Commission said it expects euro zone GDP to rise by 1.1 per cent next year, compared with the 1.2 per cent rise forecast in May. Pressure mounted on the European Central Bank to cut interest rates.

External factors, such as the slowdown in emerging economies, were cited as the main reasons for the cut in growth outlook, while the “ongoing necessary adjustment process” in euro zone countries as they implement fiscal consolidation measures will “continue to weigh on growth for some time,” the commission said.

Euro zone jobless rate
Unemployment will be higher than expected in 2014, at 12.2 per cent compared with the 12.1 per cent predicted earlier this year.

In Brussels yesterday, EU commissioner Olli Rehn warned further action was needed despite signs of a turnaround suggested by second-quarter GDP growth. "Further decisive action to boost sustainable growth and job creation will continue to be necessary in Europe, "he said.

The downbeat assessment from Brussels helped push European stocks to a five-year low yesterday afternoon. It also increased pressure on the ECB to introduce stimulus measures.

Earlier this week, Italian finance minister Fabrizio Saccomanni warned the strength of the euro posed a risk, and urged the ECB to ease monetary policy.

Irish consumers
Ireland's GDP is expected to grow by 1.7 per cent in 2014, compared to the 2.2 per cent predicted six months ago, according to the commission. This reflects weaker-than-expected developments in private consumption during the first half of the year, the report said.

Ireland’s deficit will be 7.4 per cent of GDP this year, and 5 per cent next year, before falling to 3 per cent in 2015 in line with commission targets. The current account surplus is expected to remain very high.

While Ireland has registered growth above the EU average during its rescue programme, the forecast warns of downside risks. In particular, it highlights the possible impact of expiring pharmaceutical patents, and the historically low investment- to-GDP ratio.