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OUTLOOK

France

Greece

Business investment to pick up

Structural reforms starting to bear fruit

GDP growth is projected to edge up to 1.6% by 2018, as tax cuts and faster job growth support stronger private consumption. Business investment should also pick up owing to tax reductions and low interest rates. In turn, the unemployment rate should continue to gradually fall, thanks to lower social security contributions, hiring subsidies and significant upscaling of training available to jobseekers. Inflation will remain low, as slack persists.

Growth has rebounded in the second half of 2016 and is projected to gain strength in 2017 and 2018 as structural reforms start to bear fruit, the conclusion of a policy review with creditors raises business and consumer confidence and the economic and political environment stabilises. Exports of services are underperforming because of structural rigidities and capital controls (which particularly affect the export revenue from the shipping industry). Employment is projected to increase but unemployment remains far too high.

A continued reduction in debt servicing costs and some spending restraint is projected to bring the fiscal deficit down to just below 3% of GDP in 2018. Tax and social security cuts have reduced labour costs and improved the investment climate. A recent labour law reform clarifies conditions for dismissals and gives more importance to firm-level agreements on working time. GDP growth 2015

2016

Current prices EUR billion

2 181.1

2017

2018

% real change

1.2

1.3

The Guaranteed Minimum Income should help address rising poverty and make growth more inclusive. The implementation of key structural reforms to reduce the regulatory burden and ease regulation in the energy and transport sectors will boost productivity and growth. The high level of non-performing loans undermines credit growth, holding back investment. To deal with this, the authorities should implement already legislated incentives and performance targets for banks to monitor their progress in reducing bad debt.

1.6 GDP growth 2013

2016

Current prices EUR billion

180.5

2017

2018

% real change

0.0

1.3

1.9

Germany Solid growth Economic growth is projected to remain solid, as a robust labour market, low interest rates and a mildly expansionary fiscal stance underpin consumption and residential investment. Demand from emerging market economies and euro area countries is expected to strengthen only slowly, holding back business investment. The unemployment rate will remain at historic lows. The current account surplus will fall somewhat but will remain high. Budgetary policy needs to provide even more support to counter subdued demand in the euro area and to address key structural weaknesses holding back inclusive growth. Reforms to remove barriers to entry and competition in professional services, in telecommunications, postal and rail transport services and crafts would strengthen entrepreneurship, productivity and investment. More effective requirements for banks to separate investment from retail banking, and stricter leverage ratio requirements would reduce financial market risks.

GDP growth 2015

44

Private consumption and infrastructure projects lead growth Growth should pick up in 2017 as new infrastructure projects are launched in the context of the new cycle of EU structural funding, before moderating in 2018. Private consumption should remain the main growth driver, given projected employment gains, in part supported by still large public works schemes, and faster wage growth. Increasing unit labour costs and weak markets will cut export growth. The fiscal stance is becoming expansionary, reflecting lower personal income taxes and other measures to support the economy. However, economic slack is disappearing, pushing up wage growth and consumer price inflation, which is projected to reach the official 3% target by end-2018.

GDP growth 2016

Current prices EUR billion

3 030.1

Hungary

2017

2018

% real change

1.7

1.7

2013

2016

Current prices HUF billion

1.7

30 127.3

2017

2018

% real change

1.7

2.5

2.2

OECD Observer No 308 Q4 2016  
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