Brussels, 21/02/2013 (Agence Europe) - The European Commission is expected on Friday to scale back its growth forecasts from last November to match the trend emerging over the past few days from a number of countries (see EUROPE 10725).
The French figures were leaked in the magazine Le Point on Wednesday and confirm this trend. In November, the Commission forecast that French GDP would grow by 0.3% in 2013, but now forecasts only 0% to 0.1% growth. Last week, French foreign minister Laurent Fabius said that French growth would be between 0.2% and 0.3% of GDP.
Germany is also following the trend. The Bundesbank has revised its forecasts for 2013. In December, it expected growth in 2013 to be in the region of 0.4%, compared with the Commission's forecast in November of 0.8%. On Monday, the Bundesbank said that the German economy would return to growth in the first quarter of 2013, after shrinking by 0.6% in the last quarter of 2012 (see EUROPE 10786).
Italian newspaper Il sole 24 ore reported on Thursday 21 February, that according to figures it claims are in circulation in Brussels, the Commission expects the recession in Italy to be slightly worse than forecast, with the economy contracting by 0.8% rather than the initially forecast 0.5%.
The performance of countries in receipt of aid is unlikely to be any better. Portuguese finance minister Vitor Gaspar said this week that Portuguese GDP would shrink by 2% in 2013, which is double the Commission's forecast.
In January 2013, the Irish Central Bank reduced its growth forecasts from 1.7% to 1.3% for 2013, more optimistic than the Commission, which expects Irish growth to be around the 1.1% mark.
Cyprus, still awaiting an aid programme, is expected to be one of the few EU27 nations still in recession in 2014. The government's forecasts are, as before, more pessimistic than those of Brussels. The Cypriot economy is expected to shrink by 3.5% in 2013 and 1.3% in 2014, far more than forecast by the Commission (a recession of the equivalent of 1.7% in 2013 and 0.7% in 2014).
Outside the eurozone, the United Kingdom is also following the trend. In mid-February, the Confederation of British Industry (CBI) reduced its growth forecasts by several notches, expecting British GDP to grow by 1% in 2013 rather than 1.4%. The CBI expects growth to be around 2% in 2014, the same as its previous forecasts.
Budget objectives at half-mast. Euro Commissioner Olli Rehn warned on Tuesday that the EU had a range of instruments available to ensure that countries meet their deficit correction pledges (see EUROPE 10789), but said he preferred prevention to sanctions. The Commission is expected to be flexible about deadlines. Rehn has said on several occasions that if growth unexpectedly deteriorates, then a country might be granted more time, as long as it has made the required structural budget efforts (in other words, not including the impact of the economic crisis).
Spanish prime minister Mariano Rajoy said this week that the Spanish public deficit would be 7% of GDP in 2013, above the target of reducing it to 6.3%. Rajoy promised that a second generation of reforms would follow the current austerity measures. French newspaper Le Point says France will have a public deficit of 3.6% in 2013, although it had been expected to meet its target of reducing the deficit to 3% this year.
Italian newspaper Il Sole 24 ore says that Italy has been praised for its deficit reduction and for meeting the 2012 deadline for bringing its deficit back to the required level. It is expected to continue the good work over the next two years, reducing the deficit to 2%, - “as long as the measures decided in 2011-2012 by the government are fully adopted”, explains the Commission document.
The Irish Central Bank warned the Irish government in January against any temptation to relax its structural adjustment programme in the light of the economy's better than expected performance in 2012. The bank encouraged the government to use the room for manoeuvre to bring down its deficit earlier than the scheduled 2015. (EL/transl.fl)