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