Brussels, 05/11/2013 (Agence Europe) - Europe is gradually returning to economic growth, but the upturn will not lead to a fall in unemployment levels over the next two years.
Unveiling the European Commission's Autumn Economic Forecasts on Tuesday 5 November, Euro Commissioner Olli Rehn said growth had become positive in the European Union in the second quarter of 2013 due to rising domestic demand. He said the current process of economic adjustment in the form of deleveraging by the banks (which are restricting their lending to economic operators) and slowing growth in the emerging economies would have a negative impact on recovery.
The Commission says that Europe will remain in recession in 2013 despite the green shoots of recovery in the third quarter, with GDP falling in the eurozone by 0.4% and GDP in the EU28 remaining unchanged. In 2014, GDP in the eurozone and the EU28 will grow on average by 1.1% and 1.4% respectively. There are naturally large differences between the member states. The strongest growth is expected in the Baltic States (4.1% in Latvia, for example) and strong in Sweden (2.8%), Austria (2.6%), Poland (2.5%) and the United Kingdom (2.2%). Germany will continue to be the driver of the eurozone, with growth of 1.7% of GDP, and France will increase in strength to 0.9%. Italy (0.7%), Spain (0.5%) and the Netherlands (0.2%) will still face some problems. The two eurozone nations expected to remain in recession in 2014 are Cyprus (-3.9%) and Slovenia (-1%).
Quizzed about Slovenia's ability to deal with its problems without aid, Rehn said that the country would be able to avoid requiring international aid if it continues to show its ability to take energetic measures to restructure its banks and reform its economy. The Commission has revised down the country's growth forecasts.
Economic recovery will not make much of an impact in terms of reducing unemployment until 2014. The percentage of the working population out of work is expected to stabilise in the eurozone at 12.2% in 2013 and 2014, before falling to 11.8% in 2015 (from 11.1% in 2013, compared with 10.7% in the EU28). Here too, there are great differences among the member states. Unemployment will hit 27% in Greece and 26% in Spain in 2013, but will be low in Austria (5.1%), Germany (5.4%) and Luxembourg (5.7%).
Inflation. The Commission says inflation will fall from 2.5% in 2012 to 1.5% in 2013 and 2014. Rehn said that inflation was clearly below the ECB's target. Although the deflationary risk is remote at present, the ECB is prepared to act if necessary by reducing interest rates and/or increasing liquidity for banks if the risk of lower inflation were to emerge.
The eurozone's average nominal public deficit will be 3.1%, around the Maastricht criterion, half the 2009 figure. At present, 12 member states are subject to excess deficit proceedings. Next week, the Commission will publish its analysis of member states' draft budgets for 2014 and may require a number of countries to do more to ensure they meet their deficit reduction targets (see EUROPE 10956). A close eye will be kept on Spain (deficit of 6.8% expected in 2013 and 5.9% in 2014 under current policies), France (4.1% in 2013 and 3,8% in 2014), the Netherlands (3.3% in 2013 and 2014) and Slovenia (5.8% and 7.1%). Rehn said the proceedings running against Belgium will be closed if Eurostat figures confirm a sustainable drop in its deficit (to 2.8% in 2013 and 2.6% in 2014).
Countries in receipt of aid. In 2013, a good tourist season reduced the recession in Greece, which the Commission expects to be 4% of GDP as opposed to 4.2% in its spring economic forecasts. For 2014, the economy is expected to grow by 0.6%, but this will depend on full application of the structural adjustment programme, warned Rehn. An assessment mission by the country's troika of lenders is currently underway in Athens (see EUROPE 10956), so Rehn did not comment on Greece's budget situation, simply noting that he was sure a solution would be found. The European Commission expects Greece to achieve a structural budget surplus of 1.2% in 2013, compared with the 2% estimate it made in the spring. The country's public debt is expected to be higher than expected at the start of the year at 176.2% in 2013 rather than 175.2%, and 175.9% in 2014 rather than 175%), before falling in 2015 to 170.9% of GDP. Rehn said Ireland was heading for a successful exit from its structural adjustment programme next month, adding that it was for the Irish government to say whether they wanted a preventive credit line to accompany their full return to the markets. Compared with the spring economic forecasts, the Commission expects lower Irish growth until 2015 (0.3% in 2013 rather than 1.1%, and 1.7% in 2014 rather than 2.2%), due to lower than expected household consumption. Ireland's public deficit will be larger than in 2014 under current policies (5% of GDP rather than 4.3%). The figures for Cyprus, dating back to the troika's mission in July, suggest the economy will return to growth in 2015. Unemployment and public debt are expected to rise, which is also forecast in the Commission's monitoring report in September. For Portugal, growth was surprisingly high in the second quarter, reducing recession to below the spring forecasts (1.8% of GDP, compared with the forecast of 2.3%). Growth is expected to be stronger than forecast (0.8% rather than 0.6%) and Rehn said the country would achieve its budget deficit targets for 2013. The 0.4% of GDP gap between the estimated deficit (5.9%) and the deficit target (5.5% for 2013) is due, the Commission says, to a bank recapitalisation that will not be included in the Stability and Growth Pact figures. The risks relating to the Portuguese deficit are largely political, said Rehn, explaining that, if the country's constitutional court says that the austerity measures drawn up with the troika are anti-constitutional, then the government will have to replace them with other measures that make a similar dent in the budget deficit.
Outside the eurozone. The latest member of the EU, Croatia, runs the risk of having excess deficit proceedings opened against it soon. Rehn said the Commission would be writing a report on the country's excess deficit. The deficit is expected to reach 5.4% in 2013, 6.5% in 2014 before falling to 6.2% in 2015. For the United Kingdom, the Commission's forecasts say the prospects are very positive. The Commission has doubled its growth forecasts for 2013 from 0.6% in the spring to 1.3% now, and 2.2% of GDP in 2014, rather than the 1.7% forecast in the spring. The public debt will continue to rise, however, to around 99% by 2015. The public deficit will fall from 6.4% in 2013 to 5.3% in 2014 and 4.3% in 2015. The Commission says the economy in Poland is picking up, but the budget situation has got worse. For the next two years, the budget strategy will focus on reform of the pension system, which the Commission has not yet analysed, explained Rehn. (MB/EL/transl.fl)