Europe Economy

Lower oil prices, weaker euro to boost EU growth

Valdis Dombrovskis, the European Commission's vice president.
Emmanuel Dunand | AFP | Getty Images

Lower oil prices and a fall in the value of the euro will boost the European Union's (EU) economy, making speculation of an expanded central bank stimulus program less relevant, the European Commission's vice president Valdis Dombrovskis has told CNBC.

In an interview at the International Monetary Fund's (IMF) annual meeting in Lima, Peru, Dombrovskis said that the slowdown in emerging markets posed some risk to the EU, but noted that there were also strong tailwinds.

"Lower oil prices, lower euro exchange rate [are] probably more positive factors for the European economy," he said.

Brent Crude is on track for a near-11 percent gain this week, the biggest weekly rise since early 2009, after hitting $53.25 a barrel in early Asian futures trade. The surge came after the global benchmark scraped as low as $42.23 in August on the back of oversupply worries.

Meanwhile, the euro was 1.1285 against the dollar on Friday, having slid from 1.2097 at the end of 2014.

More work needed on EU financial system: Dombrovskis

Referring to the EC's economic forecasts, due to be updated in early November, Dombrovskis said: "Our current forecast is 1.8 percent growth for the EU this year and 2.1 percent next year ... Actually we do not expect any major change in this forecast so we expect that economic recovery will gradually strengthen also next year in Europe."

There are signs of weakening in some EU economies.

On Thursday Germany released trade data that showed exports dropped in August at the fastest rate since the 2009 global financial crisis. Seasonally-adjusted exports fell 5.2 percent on-month to 97.7 billion euros ($110.2 billion) in August, while imports fell 3.1 percent to 78.2 billion euros.

But Dombrovskis, who is also the EC's Commissioner for the Euro and Social Cohesion, indicated that more quantitative easing from the European Central Bank (ECB) was not necessarily the answer to fueling further growth.

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"Quantitative easing which is being done now is helpful to the European economy at this stage, but also as [the] president of the ECB Mario Draghi has outlined, with monetary policies measures alone, you cannot solve structural problems in the economy," he said.

"So we also need to use this time wisely to implement structural reforms in the EU and member states to strengthen the competitiveness of our economy."

At its meeting on September 3, the ECB left room to expand its bond-buying program beyond the 1.1 trillion euros it planned to spend. Draghi used a news conference to emphasize that the bank was ready to act if further stimulus was needed.

Draghi also said the quantitative easing program, under which the bank buys 60 billion euros worth of bonds a month could run beyond its original completion date of September 2016.

Also key was strengthening the EU's financial system so that it was more resilient to shocks, Dombrovskis said. He said a proposal on a European deposit insurance scheme to protect banking customers would be made, with the first stage being a reinsurance scheme for domestic deposit protection schemes within Europe.