A Steadier European Economy

For the past six years, the economic headlines out of Europe have been dominated by a series of seemingly-never-ending crises that have caused more harm to Europe’s economies than any event since the Second World War.  These crises have ranged from the collapse of Greece’s economy and the struggles of all of southern European economies to the declining competitiveness of many of Europe’s once-strong northern economies.  However, apart from the ongoing tribulations of the Greek economy, most of the news out of Europe over the past year has centered on the region’s slow, but steady, recovery from its recent struggles.  While the economic results emanating from Europe have been largely unspectacular, they are much better than the results of previous years and have slowly raised the hopes of a region that has had little in the way of positive news in recent years.

The recently released economic results for the fourth quarter of last year confirmed that Europe’s economic recovery continued in the latter part of last year, despite some signs of slackening.  In the fourth quarter of 2015, each of Europe’s four largest economies grew by between 1% and 2% on a year-on-year basis, with growth rates ranging from 1.9% in Britain to 1.0% in Italy (a strong performance when compared with that country’s previous results).  On the positive side, those economies that have taken steps to boost their competiveness such as Spain and many Central European countries recorded growth rates of in excess of 3%.  However, Europe’s worst performing economies over the past six years, Greece and Finland, remained mired in recessions that are forecast to continue in 2016.  Overall, economic growth in the European Union in 2015 was 1.8% (1.5% in the Eurozone), a better performance than in recent years and in line with our expectations heading into last year, when we forecasted a slow, but steady recover for the batter European economy.

Looking ahead to the remainder of this year, we expect overall economic growth levels in Europe to remain relatively steady.  In fact, our forecasts for GDP growth in Europe for 2016 are largely in line with the growth rates recorded last year, with a few exceptions.  For the region’s larger economies, our forecasts call for slightly lower levels of growth in Germany, Britain and Spain, the three economies that have been major drivers of growth in Europe over the past 24 months.  In addition, France and Italy are both likely to struggle to record much growth in 2016 as both economies have failed to enact the types of reforms needed to boost either country’s economic competitiveness.  Instead, many smaller European economies will pick up some of the slack of their larger partners, with Central European countries forecast to record solid levels of growth that are well ahead of their western neighbors.  Domestically, demand levels are forecast to rise slightly in 2016 in many European countries after having been depressed for a number of years.  Externally, weaker European currencies will continue to benefit European exporters, although the outlook for growth in key export markets remains mixed.  Overall, European economic growth is expected to hold steady this year as the prospects for a stronger recovery are dim.  Nevertheless, when compared with the struggles of recent years, slow, but steady, growth will be welcome news for most European countries.