Brussels, 03/05/2013 (Agence Europe) - As he unveiled the European Commission's spring economic forecasts on Friday 3 May, Euro Commissioner Olli Rehn painted a gloomy picture. Despite glimmers of hope expected in the second half of the year, there is growing concern about France and the country may be offered two more years to bring its deficit back to below the 3% of GDP cut-off point. On Wednesday 29 May, the Commission will publish country-by-country recommendations based on national stability and reform programmes.
Rehn said: “We expect the EU economy to stabilise in the first half of this year. GDP growth is projected to turn positive in the second half of this year, and to gain momentum next year, in 2014. External demand will be the main driver for growth”. The economy will shrink this year, by 0.4% in the eurozone and 0.1% in the EU27, but this varies widely from one country to the next. Growth will top 3% in the Baltic States, 1.6% in Romania, 1.5% in Sweden, 0.4% in Germany, 0.3% in Finland and zero in Belgium. France will enter recession (-0.1%), as will the Czech Republic (-0.4%), the Netherlands (-0.8%), Italy (-1.3%), Spain (-1.5%) and Slovenia (-2%). Likewise for countries in receipt of aid (apart from Ireland, see below).
In 2013, deficit correction will continue at a slower pace. Rehn said it would reach 0.75% in absolute terms in the eurozone, compared with 1.5% in 2012, which is a way of saying that the revised stability and growth pact can be used to loosen the screws on the eurozone where necessary. Average pubic deficit is expected to fall from 3.7% to 2.9% of GDP in the eurozone and from 4% to 3.4% in the EU27. The highest deficits will be seen in Ireland (7.5%), the United Kingdom (6.8%), Spain (6.5%), Slovenia (5.3%), France (3.9%), the Netherlands (3.6%), Slovakia (3%) and Italy (2.9%). Germany (0.2%), Luxembourg (0.2%) and Estonia (0.3%) will be top of the class in this area.
Debt will continue to climb, rising from 92.7% to 95.5% of GDP in the eurozone and from 86.9% to 89.8% in the EU27. Not including the countries in receipt of aid, the highest debt ratio will be seen in Italy (131.4%). The only countries expected to be able to cut their debt levels are Germany (from 81.9% to 81.1%), Denmark (from 45.8% to 45%), Bulgaria (from 18.5% to 17.9%) and Lithuania (from 40.7% to 40.1%).
Unemployment is expected to rise to 12.2% of the working population in the eurozone and 11.1% in the EU27. Rehn said the unemployment situation in Spain and Greece was unbearable, with 27% of the working population out of work.
Concern about France. The commissioner said: “French forecasts are overly optimistic”. French Economy Minister Pierre Moscovici said in a press release that the differences between the figures put forward by France and the Commission were “not significant”. The commissioner commented: “For France to reach the 3% target in 2014, a significantly larger and more frontloaded effort of fiscal consolidation is required compared to what is currently planned”. He said that, in terms of getting France's deficit down, “two more years could be envisaged as long as there is a fight against the deterioration of competitiveness, complementary labour and pension reforms and opening of the market”. Pleased that France will not have to take any more budget measures this year, Moscovici pointed out that, in 2014, it was planning to cut public spending and tax loopholes, and government income would rise due to measures to clamp down on tax evasion.
Asked why Spain and France should be offered two more years, but not Slovenia and the Netherlands, Rehn said the Commission took a “differentiated approach according to countries and that, for other countries, it is better to stick to the targets or get one extra year” to reduce the deficit to below the 3% cut-off point
Commenting on Italy, Rehn said it was possible that Italy, and Hungary too, would be able to leave the excessive deficit proceedings this year as long as they keep up the momentum of budget consolidation. The Commission will make the final decision when it has received details of measures to make up the tax shortfall in Italy arising from the restrictions or scrapping of the family home tax (see EUROPE 10838).
The Commission is suggesting that the excessive deficit proceedings against Latvia, Lithuania and Romania be ended.
Countries in receipt of aid. Buoyed by better-than-expected results in 2012, Ireland is on track. After adjusting the figures for 2012 (the economy grew by 0.9% rather than the expected 0.7%), the Commission now expects growth to pick up and reach 1.1% this year and 2.2% in 2014. The budget is expected to continue to be adjusted as planned and the deficit reduced slightly to 7.5%. Made worse by the big deficit, the country's debt will rise to 123.3% of GDP this year and then fall to 119.5% in 2014. The slight fall in unemployment (from 14.7% in 2012 to 14.2% in 2013 and 13.7% in 2014) is more a reflection of a shrinking of the labour force than the creation of new jobs as such.
In Portugal, the economy is expected to gradually pick up at the end of the year and grow by 0.6% in 2014, following shrinkage of 2.3% in 2012. Budget consolidation will continue but the deficit will rise to 4% of GDP in 2014. Debt will rise slightly in 2014 after falling in 2013 (123.6% of GDP in 2012, 123% in 2013 and 124.3% in 2014).
The Commission says Greece will emerge from recession in 2014 due to increased confidence and greater liquidity in the financial industry. The confidence is due to the achievement of budget targets and a 6.2% adjustment from 2012 to 2013. The deficit is now 3.8% of GDP and will fall to 2.6% of GDP in 2014 ceteris paribus. In 2014, unemployment will start to come down, falling from 27% in 2013 to 26% in 2014. The country's debt will continue to rise in 2013 to 175.2% of GDP, and the Commission warns against “slippage with policy implementation”.
Cyprus is about to hit a sticky patch. Hit by the root-and-branch overhaul of its banking system and general economic uncertainty, the island might be one of the few member states still in recession in 2014 (GDP is expected to shrink by 8.7% in 2013 and 3.9% in 2014 ceteris paribus). The deficit remained stable in 2011 and 2012 at 6.3%, but will rise to 6.5% of GDP in 2013. The economic recession will have a negative impact on jobs, with unemployment rising to 11.9% in 2012 and 15.5% in 2013. The debt/GDP ratio will reach an “unprecedented level”, said Rehn, rising from 85.8% of GDP in 2013 to 109.5% in 2014.
Outside the euro. Poland, after a slowing economy in 2012 and 2013, will have stronger economic growth in 2014 (2.2%). The country's public deficit will remain stable between 2012 and 2013 at 3.9% and debt is expected to remain at under 60% until 2014.
Rehn said that, in the UK, “GDP growth has remained weak, expected to improve gradually this year and next year” (0.6% in 2013 and 1.7% in 2014). “On the other hand, the level of public debt is expected to rise next year”, from 90% in 2012 to 95.5% in 2013. The commissioner said there was “no case for discretionary fiscal loosening in the UK”. The British deficit is expected to increase slightly in 2013 to 6.8% from 6.3% in 2012. (MB and EL/transl.fl)