Brussels, 29/11/2010 (Agence Europe) - On Monday 29 November 2010, EU Economic and Monetary Affairs Commissioner Olli Rehn acknowledged the existence of a certain economic “dualism” in Europe when he unveiled the European Commission's economic forecasts for the autumn: “It has to be admitted. There is a certain dualism in Europe. Germany has responded forcefully to the financial crisis. Strong growth exports are spilling over in internal demand. Some countries in southern EU and Ireland have faced significant difficulties. In our view the only way to restore confidence is fiscal consolidation, at same time, structural reforms, and rebalancing growth all over EU”. Countries like Germany are in economic growth, but others, like the infamous PIGS (Portugal, Ireland, Greece and Spain), are still in economic crisis and have introduced drastic austerity measures that are damaging economic growth. After taking a tough line to deal with the economic crisis, the Commissioner said Germany was now experiencing strong growth in exports, feeding off domestic demand. Ireland and various southern European countries, however, are facing substantial problems, he explained, noting that the only way to restore confidence was for member states to consolidate their public purses and at the same time pursue structural reforms and restore balanced growth throughout the EU.
Economic growth takes root. Olli Rehn explained that economic growth had taken root and the European Commission has therefore revised its growth forecasts for the eurozone. Due to the big expansion in exports, growth may reach 1.7% of GDP in 2010, nearly double the previous forecasts (in the spring, of 0.9%). In 2011, growth will fall back slightly and reach 1.5% of GDP due to a slowing of the global economy, but then pick up again and reach 1.8% in 2012. Rehn explained that growth would be uneven, reaching 3.7% in 2010, 2.2% in 2011 and 2% in 2012 in Germany, for example. Spain will be in recession this year (-0.2%), will grow slightly in 2011 (0.7%) and pick up in 2012 (1.7%). After recession in 2010 (-4.2%) and 2011 (-3%), Greece will return to growth in 2012 (1.1%).
Irish GDP will fall by 0.2% in 2010 but then grow by 0.9% in 2011 and 1.9% in 2012. Rehn said Ireland was facing “an enormous challenge” with the terms attached to the financial aid package (see related article) but its “flexible and open” economy gave it the ability to “bounce back quite rapidly”, adding that in September 2010, Ireland had seen the biggest rise in industrial production in the EU.
Inflation is expected to reach 1.75% in the eurozone in 2011 and 2012.
Public deficits. The European Commission explains that public deficits will start to shrink under the impact of the budget consolidation measures, the rooting of economic recovery and the end of special public spending measures introduced to tackle the economic crisis. Public deficits should average 4.6% of GDP in the eurozone in 2011, down from 6.3% this year. Half of member states will have lower budget deficits in 2011 than in 2009, but there are great differences from one country to another.
The Commission's forecasts for the public deficits of Spain and Portugal are less optimistic than those of the governments concerned. The Commission forecasts that Portugal's public deficit will be 4.9% of GDP in 2011 but will reach 7.3% in 2010. This is better than the spring forecasts (7.9% for 2011), but higher than the 4.6% forecasts by the Portuguese government. Likewise for Spain, where the Commission forecasts that the public deficit will fall to 6.4% of GDP in 2011 from 9.3% this year, compared with its previous forecast of 8.8% for 2011. The Socialist government hopes to cut the deficit to 6% next year.
Quizzed about the changes in the forecasts, Rehn said that they were essentially due to the fact that the forecasts in Spain and Portugal were more optimistic than the Commission's. He said that the two countries might have to introduce additional austerity measures to meet the budget consolidation targets they had set. The Commissioner welcomed the passing of the 2011 budget in Portugal, explaining that it was crucial to continue to correct public finances with the same determination, supporting growth with voluntarist policies in order to lay healthy foundations for sustainable growth and jobs. Turbulence on the sovereign debt market points to the need for strong political action by the public authorities, he added. (M.B. trans fl)