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E U R O P E A N B A N K I N G A U T H O R I T Y

10

1. External environment

1.1 Market sentiment and

macroeconomic environment

Growth is increasing steadily although it

remains fragile and fragmented

During the second half of 2014, growth in the

EU was slightly stronger than originally ex-

pected. However, it remains fragile and frag-

mented. Actual real GDP growth rates in 2014

were 1.4 % in the EU and 0.9 % in the euro

area (

4

). Forecasts for this year and the next

are above these growth rates but still low.

Annual GDP growth in the EU is projected at

1.8 % (2.1 % in 2016), while growth in the euro

area is expected to be 1.5 % (1.9 % in 2016).

Growth in the EU would be positively influ-

enced by lower oil prices, a depreciation of

the euro, generally improved financial con-

ditions as well as expansive monetary poli-

cies. In the euro area an expected increase in

demand for loans by households and corpo-

rates, according to the ECB’s lending survey

for Q1/2015, might also underpin growth go-

ing forward.

(

4

) Economic data is based on the European Commis-

sion’s ‘Spring 2015 Economic Forecast’,

http://ec.europa. eu/economy_finance/eu/forecasts/2015_spring_forecast_ en.htm

, if not otherwise indicated.

On the other hand, private and public debt

overhang remains at worrisomely high levels

and might still be weighing on the recovery of

growth. The aggregate of general government

and private sector debt (non‑financial corpo-

rations and households) compared to GDP in

EU countries fluctuated between 175 % and

514 % as of the end of 2013 (Figure 1).

Inflation remains low. It is expected to de-

crease from 0.6 % in 2014 to 0.1 % in 2015 in

the EU and from 0.4 % in 2014 to 0.1 % for

the euro area (harmonised index of consum-

er prices, forecasts for 2016 are 1.5 % for

both the EU and euro area). The unemploy-

ment rate is expected to decrease at a slow

pace, from 10.2 % in 2014 to 9.6 % in 2015

(EU, 2016 — 9.2 %) and from 11.6 % to 11.0 %

(euro area, 2016 — 10.5 %). Benign employ-

ment growth and low inflation rates might

deter consumers and investors spending and

put further downward pressure on growth.

On the other hand, the announcement by the

ECB in January 2015 of its QE programme,

aimed at fulfilling the ECB’s price stabil-

ity mandate and addressing the risks of

an over‑prolonged period of low inflation,

should have a positive effect on inflation and

growth (

5

). Current economic and financial

(

5

) For economic trends as well as comments on it see also

the IMF’s world economic outlook, April 2015.

0

100

200

300

400

500

600

Slovakia

Poland

Estonia

Czech Republic

Germany

Slovenia

Austria

Finland

Hungary

Norway

United Kingdom

Italy

Greece

France

Spain

Denmark

Sweden

Netherlands

Belgium

Portugal

Luxembourg

Ireland

United States

Japan

Debt of general government, as a percentage of GDP

Private sector debt, as a percentage of GDP

Figure 1:

Debt of general government and private sector debt as a percentage of GDP (EU–

OECD countries, USA and Japan, end of 2013)

Source: OECD statistics, EBA calculations.