The European Economic Dilemma: Adjusting Growth and Inflation

For a while now, Europe has been going through a wide variety of issues. Whether it’s the refugee crisis, risk of Britain voting to leave the European Union, or Greece’s economic disaster, Europe has been set back recently. Despite these issues, European leaders cannot afford to lose sight of their long-term economic goal, “Growth.” Europeans need to act now due to the continent's aging population that creates a significant barrier for economic growth. Statistics show that by 2050, the EU labor force could shrink by 42 million, or 12%, making growth almost impossible to achieve. 

There is no single policy or action that can reignite Europe’s economy. It will take a group effort, or what is referred to as a pan-European effort, and a combination of actions to prompt investment and expand the labor force. The largest factor believed to create sustainable economic growth, which at 2-3% is more than double what the Eurozone's current rate, consists of mobilizing the workforce. Ways to achieve this include increases in immigration and worker productivity, investing for further growth, specifically in education and innovation, and improving EU competitiveness worldwide.

Even though the headlines concerning Europe for the last couple of years have not been bright, the EU is far from being a weak region. By itself, the EU makes up a quarter of the global GDP and is known for its unique attributes – such as German trade competitiveness and world class French transport infrastructure. Comparing the Eurozone to the United States, European companies have a larger presence in the Fortune Global 500 (142) compared to American companies (128). For the next two years, Europe will be adjusting and adapting to reach its economic growth goal. Furthermore, the economy in Europe has been picking up lately and experts have noticed a change in the Eurozone, as inflation and growth expectations since January have improved.

A group of experts, who are affiliated with institutions within the European Union, conducted a survey, and which found a majority anticipate the inflation and growth rates in the Eurozone to drop the next 2 years. Survey respondents believe that inflation this year will be 0.3%, .4% lower than the forecast in January’s survey. Also, next year’s inflation is due to be 1.3%, versus 1.4% predicted previously. The outlook for economic growth in 2016 and 2017 is also expected to be lower. Most expect economic output growth to be 1.5% for 2016 and 1.6% for 2017, compared to January’s predictions of 1.7% and 1.8%, respectively. For 2018, the forecast for inflation and economic growth remains unmoved. at 1.6% and 1.7%.

The European Central Bank’s (ECB) President Mario Draghi stated that inflation in the 19-country bloc could become negative in the coming months before picking up in the second half of 2016, and should continue to recover in 2017 and 2018. The ECB’s objective is to elevate inflation to its medium-target of just below 2%. It is without doubt a tough challenge, but Europe hopes it is on the right track and taking the necessary actions to guarantee they reach their goal.