May 28, 2015 12:04 am

All the economies of EU member states are set to expand this year for the first time since the financial crisis as a combination of cheap oil, the weaker euro and aggressive monetary easing by the European Central Bank buoy hopes of a broad-based economic recovery.

A rise in real wages and cheap energy prices is expected to spark strong growth in household spending across Europe, according to the World Bank forecast seen by the Financial Times, although consumption will not return to pre-crisis levels for some time.

Poland, Romania and other central and eastern states, which navigated the 2008 crisis and its aftermath better than their western peers, will continue to outperform other European economies over the next two years. They are expected to post more than 2.4 per cent gross domestic product expansion in 2015, based on strong consumer demand, the gradual return of investment, and continued export growth.

The report forecasts growth of 1.5 per cent for 2015 and 1.8 per cent for the following year in the euro area. Its projections for the whole of the EU were for growth of 1.8 per cent this year and 2 per cent in 2016.

Despite the relatively rosy outlook, the report warned of divergent monetary policy in the US and Europe increasing financial market volatility. It also highlighted renewed pressure on public finances owing to low inflation and modest growth and fears over the effect of crises in Greece and Ukraine.

Theo Thomas, the report’s co-author, urged countries to continue reforming labour market policies, removing trade barriers and investing in job skills to protect the continent’s nascent recovery.

“The medium and long-term challenge in many countries is to shift policy from fiscal and macroeconomic adjustment towards structural measures to promote growth and competitiveness,” he said.

Poland, already the EU’s sixth largest economy, has been the fastest-growing over the decade since it joined the bloc in 2004, driven by strong exports, a robust manufacturing industry, and efficient use of billions of euros in EU funding every year. It is not yet a member of the euro.

The country, along with other big eastern European exporters such as Bulgaria, will continue to outpace overall EU growth, the World Bank said, as their factories benefit from recovering demand in the rest of the bloc.

“However, as FDI has declined following the crisis, there is greater need for countries to focus on improving business environments, developing skills, encouraging innovation, investing in infrastructure, and reducing regulatory barriers to encourage renewed FDI and export growth.”