Brussels, 25/02/2014 (Agence Europe) - The European Commission's Winter Economic Forecasts finds growth recovery in both the eurozone and the EU28.
This modest growth (1.2% of GDP in 2014 and 1.8% in 2015 in the eurozone, and 1.5% of GDP in 2014 and 2% in 2015 in the EU28) remains uneven and is not enough to lead to a decisive fall in unemployment (employment is expected to expand by 0.3% in 2013 and 0.5% in 2014 in the eurozone).
“Only Cyprus and Slovenia are expected to stay in recession in 2014. In 2015, all EU economies are expected to expand”, stated Euro Commissioner Olli Rehn in Strasbourg on Tuesday 25 February, adding that the bond spreads were continuing to narrow. The commissioner said there were three main messages in the Commission's forecasts - growth is picking up in the member states, but remains modest; conditions are improving on the money markets, hinting at recovery in the financing of the real economy; inflation is expected to be 1% in the eurozone and 1.2% in the EU28 for 2014, and will remain low until the end of 2015.
The Commission says that economic growth in 2014 will be strongest in Lithuania (3.5%), Poland (2.9%), Sweden and the United Kingdom (both 2.5%), Romania, Estonia and Slovakia (both 2.3%), Luxembourg (2.2%) and Hungary and Malta (both 2.1%). The lowest growth will be in Finland (0.2%), Croatia (0.5%), Greece and Italy (both 0.6%), Portugal (0.8%), Spain, France and the Netherlands (all three at 1%), and economic recession will continue in Cyprus (where GDP is expected to contract by 4.8%) and Slovenia (-0.1%).
One reason to be cheerful is the gradual increase in domestic consumption. The gradual introduction by the German coalition government of a minimum wage is a striking example of this, but Rehn said that the economic crisis was beginning to be a thing of the past and the levels of private debt were falling, as was the need for households to put aside emergency funds. In Italy and the Netherlands, however, the recovery will be export-led, he said.
The improvement in public finances is continuing and, in the eurozone and EU28, public deficit levels are expected to fall from 3.1% and 3.5% of GDP respectively in 2013 to 2.6% and 2.7% of GDP in 2014, but this varies widely from one country to another. Germany, the eurozone's biggest economy, is expected to achieve a balanced budget in 2014. Along with Poland (which is due to have a budget surplus 5%), Germany will be the only EU country to achieve this. The following countries will have a public deficit of below 3% of GDP: the Czech Republic (2.8%), Malta (2.7%), Belgium and Italy (both 2.6%), Finland (2.5%), Lithuania (2.3%), Greece and Romania (both 2.2%), Austria (2.1%), Bulgaria (1.9%), Denmark (1.3%), Sweden (1.5%), Latvia (1%), Luxembourg (0.5%) and Estonia (0.4%). The following will have a public deficit of over 3%: Spain and Cyprus (both 5.8%), Croatia (5.4%), the United Kingdom (5.2%), Ireland (4.8%), France and Portugal (4%), Slovenia (3.9%), Slovakia (3.3%) and Hungary (3%).
With recovery picking up and deficits falling, average public debt is due to peak in 2014 at 95.9% of GDP in the eurozone and 89.7% in the EU28, before starting to fall slightly in 2015 (to 95.4% of GDP in the eurozone and 89.5% in the EU28). In 2014, the highest public debt levels as a proportion of GDP are expected to be in Greece (177%), Italy (133.7%), Cyprus (121.5%), Portugal (126.6%) and Ireland (120.3%). The lowest debt levels are expected to be in Estonia (10.1%), Bulgaria (22.7%), Luxembourg (25.5%), Latvia (38.7%) and Sweden (41.8%).
The Commissioner brought up the question of low inflation. Annual inflation stood at 0.8% in January, unchanged on December 2013, according to the EU's statistical office, Eurostat. He said this was both positive and negative because it boosts real disposable incomes, but a prolonged period of low inflation would make ongoing re-balancing more challenging. It is normal for inflation to be low in crisis countries, he added, because of the downward pressure on energy prices and pay levels, and was therefore to be expected in peripheral eurozone nations that are returning to competitiveness.
There are differences between the European Commission's economic forecasts and those of France when it comes to the public deficit reduction trajectory. Rehn's department forecast that the country had a deficit of 4% in 2013, 4% in 2014 and 3.9% in 2015, compared with the French forecasts of 4.1%, 3.6% and 2.8%. On Tuesday, French Economy Minister Pierre Moscovici said that France would be sticking to its deficit reduction trajectory and, in 2014, he would be holding dialogue to identify any possible slippages.
The commissioner was happy that hard work was paying off in Ireland and Spain, two countries that have now exited from financial aid programmes. The Spanish figures are a little better than expected due to rising confidence, leading to lower rollover costs for Spanish debt and initial positive results for the labour market last year.
Countries in receipt of aid. Greece is shaking off its reputation as the weak link in the eurozone chain. After GDP in the country contracting by 3.7% in 2013 (less than the 4% forecast in the Autumn Economic Forecasts), the Greek economy will return to growth in 2014 after more than six years of recession. The recovery will be largely symbolic at first (+0.6% in 2014), but will rise in 2015 to 2.9%. Rehn said that, for the first time since 1948, Greece had registered a current account deficit and a primary budget surplus (not including debt-servicing).
The Commission confirmed the statements by Greek Finance Minister Yannis Stournaras that unemployment would fall in Greece in 2014. Unemployment hit 27.3% of the working population in 2013, but will fall to 26% in 2014 and 24% in 2015. Greece's public debt is expected to fall from 177.3% in 2013 to 177% in 2014 and 171.9% in 2015.
The figures for Portugal are currently being revised by the troika (European Commission, European Central Bank and International Monetary Fund) in Lisbon. The Commission's forecasts do not include the third quarter of 2013 and Rehn said it was possible that economic growth would be higher than the Commission's forecasts. Based on data collected to date, the Commission thinks Portuguese GDP will contract by 1.3% in 2013 but return to growth of 0.8% in 2014 and 1.5% in 2015. The Commission warns that the Portuguese recovery is vulnerable to significant market deterioration due to uncertainty over policy implementation by the government and a worse than expected external environment.
Cyprus and Slovenia are the only countries expected to remain in recession in 2014. The recession in Cyprus will be severe, with the economy contracting by 4.8% in 2014, before returning to growth in 2015 (+0.9%).
Domestic demand in the United Kingdom boosted growth to 1.9% in 2013 and will continue to be the main growth engine in the future. British GDP is expected to grow by 2.5% in 2015 and 2.4% in 2015. The United Kingdom's public debt is continuing to rise and is expected to rise from 91.4% in 2013 to 93.4% of GDP in 2014 and 94.5% in 2015. Domestic demand is driving the Polish economy, which is expected to grow by 3.1% of GDP in 2015 (following growth of 1.6% of 2013 and 2.9% in 2014). Poland's general budget equilibrium will be affected by the U-turn on pension reform, with some transfers no longer being called income from the autumn of this year, but Rehn says the budget prospects are expected to gradually perk up. He said that he would be able to have a clearer idea in June after analysing Poland's economic and budget policies. Rehn's department says the general Polish deficit may return to below the 3% cut-off point in 2015, paving the way for the end of the excess budget deficit proceedings against the country.
Croatia is coming out of recession (-0.7% in 2013, +0.5% in 2014 and 1.2% in 2015), but its debit will reach 68.7% of GDP in 2015. Croatia's public deficit will fall until 2015 (-6% in 2013, -5.4% in 2014 and -4.8% in 2015). (MB and EL/transl.fl)