Brussels, 05/05/2010 (Agence Europe) - In the current context, the European Commission's latest economic forecasts are almost a reason to be cheerful. In his presentation to the press of the spring economic forecasts, Olli Rehn stated that “the improved prospects for economic growth this year are good news for Europe”. With a quarter of a percentage point more than for the autumn forecasts, the figures presented on Wednesday 5 May by the Commissioner are certainly a little more upbeat but the level of uncertainty surrounding economic recovery in Europe remains high, as demonstrated by the recent tensions on the bonds markets. Eurozone growth is expected to be 0.9% in 2010 and 1.5% in 2011. For the EU as a whole, the figures stand at 1% and 1.7% respectively.
This modest upward revision is particularly due to a global economic performance that has proved better than expected (particularly in Asia), which has benefited EU exports. In 2010, world trade is expected to be twice the figure that was anticipated last autumn, pointed out that Commission. The latter, however, illustrated the low level of domestic demand in Europe (particularly in the investment field). In these conditions, recovery will be gradual and vary from one member state to the other, explains the Commission. As a whole, growth is expected to remain moderate during the first quarters of 2010, before gaining a little more strength towards the end of the year.
Among the main economies in the world, France and Germany are expected to have the highest average growth this year (with 1.3% and 1.2% respectively), while Spain will remain in recession (-0.4%). The United Kingdom may also experience growth of 1.2% in 2010 (and 2.1% in 2011). Poland is the only EU country not to have experienced a recession and will continue to grow by a relatively sustained pace (2.7% in 2010 and 3.3% in 2011).
For the smallest economies, the rebound has been particularly noticeable in Luxembourg (2% in 2010 and 2.4% in 2011), Slovakia (2.7% and 3.6%) and Sweden (1.8% and 2.5%). On the other hand, GDP will still contract this year in Cyprus (-0.4%), Ireland (-0.9%), Latvia (-3.5%) and in Lithuania (-0.6%). The fall in GDP in Greece will be much steeper than forecast and could even get worse following the recently introduced austerity measures that are part of the programme negotiated with the Commission, ECB and IMF. For the time being, the Commission is counting on 3% growth in GDP this year (as opposed to the -0.3% last November) and an additional 0.5% in 2011 (as opposed to an increase in GDP of 0.7% in its previous forecasts). The Commission also believes that the other EU countries will find the path to positive growth again by next year at the latest.
The impact of the crisis on the labour market will be more measured than previously thought by the Commission during its previous seasonal forecasts (by half a percentage point), although the unemployment level will be 9.8% for the EU and 10.3% in the eurozone in 2010. The Commission says that this can be explained by certain short-term measures and by the decision to resort to labour hoarding in some member states, in addition to previous reforms. Differences between member states range from between 4-5% in countries like the Netherlands and Austria to around 20% in Spain and Latvia, where the decline in the construction sector has been huge.
In the context of public finances, Rehn said that EU member state deficits are very high and cause for concern. The Commission emphasised that the level of deficit had tripled since 2008 and expected the EU to have a deficit of 7.2% of GDP this year (as opposed to 6.8% in 2009). In the eurozone, the deficit will be 6.6% of GDP in 2010 (as opposed to 6.3% last year). This trajectory is due to automatic stabilisers and budget recovery measures taken almost everywhere, as well as a fall in tax revenue, which reflects a change in the composition of growth, which now includes elements that raise fewer tax revenues, such as exports. Improvements in this area are expected in 2011, with a deficit of 6.5% in the EU and 6.1% in the eurozone, mainly due to the end of temporary economic support measures. The debt ratio, however, will continue to increase and reach almost 84% of EU GDP and 88.5% in the eurozone in 2011. Commissioner Rehn insisted that “all EU member states will have to take concrete measures and make a greater effort” to clean up their public finances. He also said that he was in favour of strengthening the Stability and Growth Pact. According to the commissioner, it is necessary to introduce more rigorous preventive surveillance of member state budgetary policies and to increasingly highlight the issue of debt (not just the deficit).
The level of inflation has leapt up from its lowest level during the middle of 2009 but changes in prices are expected to remain moderate, in compliance with the European Central Bank (ECB) stability objective. According to the Commission the rate of inflation is expected to be 1.5% in the eurozone and 1.8% in the EU in 2010 (1.7% in 2011 in both zones). (A.B./transl.fl)