Brussels, 03/11/2009 (Agence Europe) - On Tuesday 3 November, the European Commission published its autumn economic forecast, confirming the gradual return of growth in Europe. The figures are not very different from those presented in the interim forecasts (EUROPE 9976), but refer to all of the member states for 2010 and 2011. The end of the recession is confirmed for the second half of 2009, even though GDP is set to fall by 4% in the euro zone and 4.1% in the EU as a whole for the year underway. The gradual recovery is set to allow positive growth of 0.7% in both zones next year and by 1.5% and 1.6% respectively the following year. "The economy of the EU is coming out of recession", Commissioner for Economic and Monetary Affairs Joaquín Almunia told a press conference. Major challenges have been met, he added, stressing the need to cleanse the banking sector and to "consider how best to address the adverse effects that the crisis has had on labour markets, public finance and growth potential".
"The situation is stabilising and even improving", said Commissioner Almunia, pointing out that the upturn was due to the improvement of the international economic situation (particularly in Asia), to State budgetary support measures and monetary policy conditions. The recovery in economic activity, which has been confirmed by an upturn in the confidence indicators, still remains largely based on temporary factors. The profile of the recovery is therefore likely to differ from that of previous cycles, with the economy seeking its way to a new balance, notes the Commission, which anticipates constraints upon internal demand and EU exports. Investment, in particular, is not expected to recover until 2011 and private consumption is likely to suffer from gloomy employment prospects. It is therefore likely that after a phase of upturn in growth in the EU, GNI is likely to fall off before increasing in intensity in the second half of 2010 and beyond, predicts the Commission. "Recovery will be sustained in 2011, but will speed up in 2010", stressed Commissioner Almunia.
Looking at the individual member states, the drop in GNI has ranged between 2.2% in France and 4.5% or 5% in Germany, Italy and the United Kingdom. The three Baltic countries are by far the most affected, with a drop in GDP of 13.7% in Estonia, 18% in Latvia and 18.1% in Lithuania. It is worth noting that Poland is likely to register positive growth this year (1.2%). These differences in economic performance can be explained by a variable exposure to the problems of the financial sector, different degrees of openness to trade and whether or not there had been a housing market bubble before the crisis, explained the Commissioner, who confirmed that the situation will remain difficult on the employment market everywhere.
Although the impact of the recession has turned out to be less severe than anticipated for unemployment for the time being, this is expected to grow worse over the next several quarters. From 9.5% in the euro zone and 9.1% in the EU this year, the employment rate is likely to reach 10.7% and 10.3% respectively in 2010 and 10.9% and 10.2% respectively in 2011. Some 10 member states are expected to record an employment rate in double figures in 2010, Spain potentially as high as 20% of the active population and 14% in Ireland. These high unemployment figures will contribute to limit salary and inflation list pressures, although the level of consumer prices is set to increase.
The inflation rate is likely to return gradually to a level which is more in line with the price stability objective of the European Central Bank (ECB). From 0.3% in the eurozone and 1% in the EU in 2009, the inflation rate is expected to rise to 1.1% and 1.3% respectively in 2010 and to 1.5% and 1.6% respectively in 2011. According to the Commission, the differences between member states is likely to be less pronounced than before the crisis and inflation expectations seem to be well founded, so that no significant risk of deflation is anticipated.
The public finances of the member states will continue to suffer the effects of the crisis, with deficits dropping to -6.4% of GNI in the euro zone and -6.9% in the EU in 2009 (compared to -2% and -2.3% in 2008). The ratio is then likely to be -6.9% and -7.5% respectively in 2010, then -6.5% and -6.9% in 2011. This unsurprising outlook can be explained by the interplay of automatic stabilisers, discretionary recovery measures and the drop in budgetary revenue. The public debt will follow a similar trajectory, rising from 78.2% of GNI in the euro zone and 73% in the EU this year to 84% and 79.3% respectively next year. However, whereas the level of deficits is likely to start to drop in 2011, the ratio of debt will continue to increase, reaching 88.2% and 83.7% respectively.
Budgetary situations under close surveillance
In the eurozone, only Finland, with 2.8%, will remain below the 3% threshold of the Stability and Growth Pact (SGP) this year. Bulgaria (0.8%), Denmark (2%), Estonia (3%) and Sweden (2.1%) also come into line in 2009, but next year, Bulgaria (with 1.2%) is set to be the only member state to present a public deficit ratio below the reference value. This situation is to be expected, given the measures taken to fight the crisis, but which are also likely to usher in new excessive deficit proceedings in the future.
At this moment in time, the Commission will first will take position on the way in which certain countries, against which proceedings were already open, have implemented the recommendations made to them by the Council nearly 6 months ago. On 11 November, it will consider whether Spain, France, Greece, Ireland and the United Kingdom have taken effective measures in line with the requirements of the SGP (on the basis of article 104 § 8 of the treaty), before tackling the cases of the six other countries also under these proceedings in January (Hungary, Latvia, Lithuania, Malta, Poland and Romania).
For Greece, Mr Almunia confirmed on Tuesday that the Commission will open a new stage in the proceedings, noting that the country has not taken the desired effective measures (EUROPE 10002). After a re-evaluation of the Greek budgetary statistics, the objective of returning below 3% in 2010, which have been assigned to it by the Council, is no longer tenable. The time frames given to correct the deficits in France (2012), Spain (2012), Ireland (2013) and the United Kingdom (2013-2014) are also turning out to be hard to stick to. Although they are dropping, the deficit to GDP ratios are still likely to be 7.7% in Paris, 9.3% in Madrid, 14.7% in Dublin and 11.1% in London in 2011.
This date is likely, in any case, to mark the return to sustain budgetary consolidation throughout Europe. The forecasts of the Commission anticipating a return to sustained growth in 2011 and the implementation of the strategy to get out of budgetary deficit situations is expected to start in earnest no later than this time, stressed the Commissioner, who hopes for a commitment from the finance ministers. The required annual adjustment will be of least 0.5%, but depending on the initial budgetary position, the long-term sustainability of public finances and other macro-economic imbalances specific to each country, may justify a correction of 1% or more, depending on the individual cases. (A.B./transl.fl)