European Finances
Government consumption in 2016 was kept higher than previously anticipated due to spending on areas like security and immigration by some EU countries , rising by 0.5 % in 2016 Q4 compared to just 0.1 % in Q3 . According to the European Commission ’ s Spring 2017 statement , the growth in spending should slow down this year and is now expected to fall from 1.7 % in 2016 to 1.5 % in 2017 and just 1.3 % by 2018 .
Lower interest rate payments and only moderate increases in public sector wages are forecast to play a significant role in reducing both the governemnt budget and debt deficits with the former dropping to 1.8 % by 2018 and the latter down to 89 % of GDP .
Structural concerns within the European banking system still prevail . High operating costs and low levels of profitability due to the sustained historically low interest rates combine with significant numbers of non-performing loans “ NPLs ” creating significant challenges particularly in countries like Italy .
As well as acting as a break on GDP growth , rising inflation and moderated wage increase will put a squeeze on disposable income throughout 2017 and 2018 . In fact the recovery in consumer prices lookd set to halve the rate of growth from the circa 2 % seen in the last two years to just 1 % for 2017 . The recent increases in fuel prices will wash through the system during the latter part of this year and into 2018 resulting in lower inflation . When combined with improving employment opportunities , and with it increasing wage rises , disposable income should pick up next year and help provide a small boost to private consumption .
Source : European Commission
European Automotive Report - 2017 Quarter 1 4