Europe: Commission forecasts in focus – SocGen

Analysts at Societe Generale points out that the EU Commission releases the Autumn 2017 Economic Forecasts today, which will be used as the basis for the detailed assessment of the 2018 Draft Budgetary Plans (DBP) submitted on 15 October.

Key Quotes

“In particular, the EC will assess the fiscal measures announced by the EU governments in the draft budget bill. Any shortcomings or potential drift between the EC estimate and the 2018 government commitment might push the EC to require corrective action. Regarding the 2018 public finances figures, the EC applies the 2018 DBP with its own forecasts and assessment of the efficiency of the measures, which will give idea sense of the required fiscal tightening to meet the 2018 targets.” 

“The EC has already requested clarification on the fiscal consolidation measures to Belgium, France, Italy and Portugal, signalling that their DBP is at risk of significant deviation from the target. As such, the EC is likely to request additional fiscal effort for these countries when it releases its DBP assessment by the end of November. Note that the EC also sent a letter to Spain requesting an updated DBP as soon as possible. Indeed, the Spanish government only sent a DBP with no new measures for 2018 (vs a target of 0.5% of GDP), as it did lose its majority since the Catalonia referendum.”

“In terms of growth, compared to the last report published in April, the EC is set to significantly revise upward its 2017 growth forecasts. Indeed, the EC had a 2017 figure of 1.7% compared with 2.2% for the consensus. Only limited downward revision to inflation is expected for 2017 (EC: 1.6%, consensus and SG: 1.5%). We also expect minor changes to the 2018 outlook, with growth at slightly below 2% (April forecasts, consensus and SG: 1.8%) and inflation at below 1.5% (April forecasts and consensus: 1.3%, SG: 1.2%).”