- On 7 February the European Commission estimated that the EU and the euro area grew 2.4% in 2017, the fastest pace in a decade.
- For 2018 it forecasts 2.3%: the European economy moves from recovery to expansion.
- A forecast is not a commitment: use it as a reference for sales, cost and financing scenarios.
On 7 February 2018 the European Commission presented its interim winter economic forecast. By its estimates, both the European Union and the euro area grew 2.4% in 2017, the fastest pace in a decade and above what had been expected. For this year, Brussels anticipates growth of 2.3%.
The report describes an economy moving “from recovery to expansion”, a phrase that sums up the change of phase: after years of recovering what was lost in the crisis, growth now rests on a broader base. For European companies it is a good moment, but also one in which risks are watched more closely.
What an interim forecast is
The Commission publishes its full economic forecasts twice a year, in spring and autumn, and updates them with interim versions in winter and summer. The latter are shorter: they focus on growth and inflation for the Union, the euro area and the largest economies, and are produced with less information than the full ones.
Forecasts start from technical assumptions, such as the oil price, exchange rates and interest rates, and assume that policies already announced do not change. That makes them a conditional scenario, not an unconditional prediction: if the assumptions change, so does the result. They are often revised in later editions. It is worth remembering that Brussels, like other institutions, revises its estimates frequently: revisions can be upward or downward as new data on output, employment and trade arrive.
What they are for
Brussels’ figures are used as a reference in the oversight of national budgets and the assessment of public deficits. Analysts, banks and companies also use them to test their own scenarios. A forecast of 2.3% does not say how much a particular company will grow, but it indicates the background climate in which its European customers operate. The euro area and the European Union share much of their cycle, but not all countries grow at the same pace, and differences between economies explain why interest rates or fiscal policies do not affect everyone equally.
For Spanish exporters, who sell much of their output in the rest of the Union, the reading is relevant: sustained growth in trading partners tends to support demand. But dependence on external factors, such as exchange rates or energy prices, remains a source of uncertainty. In an open economy such as Spain’s, the growth of the main trading partners matters for exports, tourism and foreign investment, so these forecasts help gauge external demand.
What to review
It is useful to check what share of the company’s revenue depends on European markets and what share on the domestic market, and to compare the budget assumptions with forecasts from independent bodies. If the company’s central scenario is more optimistic than the consensus, it is worth knowing why.
Currency risk and the cost of financing also deserve attention, as they can move quickly when expectations change. This information is general and is not an investment recommendation; for specific decisions, consult your adviser. A final useful exercise is to compare the company’s budget assumptions with three references: official forecasts, those of banks’ research departments and those of its own sector, to see whether any is clearly more optimistic.
Forecasts give direction, but they do not replace your own scenarios.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
