May 5, 2015 6:20 AM

EU raises eurozone forecast despite bleaker Greek outlook

The Associated Press

BRUSSELS (AP) The European Union has nudged up its forecast for economic growth across the 19-country eurozone despite a much gloomier outlook for Greece, which is struggling to get its hands on vital bailout cash it needs to pay off debts.

In its spring forecast published Tuesday, the EU's executive branch said it is predicting 1.5 percent growth for the eurozone in 2015, up 0.2 percentage points from the previous forecast in February. For 2016, the Commission has kept its forecast of 1.9 percent for the eurozone.

It said the eurozone as a whole is benefiting from a number of factors, including lower oil prices, a steady global outlook, the weaker euro, the 1.1 trillion-euro monetary stimulus ($1.2 trillion) from the European Central Bank and less stringent budget policies.

"The European economy is enjoying its brightest spring in several years, with the upturn supported by both external factors and policy measures that are beginning to bear fruit," said Pierre Moscovici, European Commissioner for Economic and Financial Affairs. "But more needs to be done to ensure this recovery is more than a seasonal phenomenon."

Once again, the recovery is being powered by Germany, Europe's biggest economy. It is expected to post solid economic growth of 1.9 percent this year, followed by 2 percent next. Another standout is Spain, which is expected to grow by a healthy 2.8 percent in 2015 and 2.6 percent the following year.

One country seemingly going the other way is Greece, which is struggling to agree on a package of economic reforms with European creditors to unlock bailout funds. Without the 7.2 billion euros ($7.8 billion), Greece could face bankruptcy and a potential exit from the euro.

The uncertainty, which has grown since the left-wing Syriza party won January's general election on a promise to bring an end to hated austerity policies, has weighed on the Greek economy. Businesses and investors are wary of making long-term plans in a country whose economic future is clouded in uncertainty.

The European Commission now anticipates 0.5 percent growth this year. That's a stunning 2 percentages points lower than the forecast made just three months ago. For 2016, the Commission anticipates Greek growth to accelerate to 2.9 percent.

In its forecast, the Commission said the "positive momentum" that was building up last year after Greece's savage recession came to an end has been stunted.

The Commission also said the uncertainty has contributed to a "significant shortfall" in state revenues at the turn of the year.

Greece has relied on bailout cash some 240 billion euros from its euro partners and International Monetary Fund for five years after its public finances spiraled out of control and investors were reluctant to lend it money. Years of austerity, such as big cuts to government spending, have helped reduce the country's borrowing levels but the debt burden as a proportion of economic output has continued to rise amid recession.

The Commission's Moscovici conceded that the forecast for Greece is subject "to a high degree of uncertainty" and is premised on a successful conclusion to the current discussions between the Greek government and creditors. The two sides have been locked in talks for months but there are some hopes that a deal may be seen on May 11 at a meeting of the eurozone's 19 finance ministers in Brussels.

"What I would hope between now and May 11, the eurogroup will be able to see significant progress in our discussions with Greece," he said. "I think that is the signal everyone is waiting for both in Greece and among Greece's partners."


Pylas contributed from London.


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