Brussels, 21/11/2001 (Agence Europe) - On Wednesday, the European Commission published its economic forecasts for 2001-2003, expecting the eurozone economy to grow by no more than 1.6% on average in 2001 (compared with 3.4% in 2000) and 1.3% in 2002, rising to 2.9% in 2003. GDP growth in Europe is expected to lost steam very fast at the end of 2001 (negative growth of +0.2% in the fourth quarter of 2001) but the Commission has expressed confidence in the future, feeling that a recession is not inevitable, and that the EU economy should gradually start to pick up in the second quarter of 2002 (in the hope of the US economy picking up) and this is expected to continue throughout 2003. The Commission adds that "Weak growth will lead to the first increase in employment since 1997, but strong growth in 2003 will bring it down again to below its 2001 rate". Inflation is forecast to fall back below 2% from the first quarter of 2002 onwards. "Fiscal consolidation in the euro area as a whole will temporarily stall… and is forecast to improve marginally in 2002".
Germany is the big eurozone economy that registered the biggest downward revision of forecasts for economic growth in 2001 (0.7% in both 2001 and 2002), followed by Finland (0.5% in 2001 compared with 5.7% in 2000), whose economy has been badly hit by the collapse of the information technology and communications bubble. "Thanks to an investment and spending boom linked to the organisation of the Olympic Games, Greece is likely to continue enjoying a strong expansion" (4.1% in 2001 and 3.5% in 2002). The Commission expects growth to slow down in Ireland (6.5% in 2001, 11.5% in 2000 and 3.3% in 2002), Luxembourg (4.0% in 2001, 9.5% in 2000) and Spain (2.7% in 2001 and 4.1% in 2000). "France resists well", notes the Commission, and is expected to grown on average by 2% in 2001, pretty similar to Italy (1.8% in 2001 and 1.3% in 2002). The "United Kingdom will grown clearly above the EU average", by 2.3% in 2001, for example.
At a press conference, Pedro Soles said that the growth forecasts were of concern to an extent, but added that there was light at the end of the tunnel, all the same. He highlighted the rise in oil prices in 1999 and 2000 and the hike in food prices in 2001 that caused inflation to rise and therefore gnawed away at households' spending power; world trade sharply fell following the slowdown of the US economy (which will struggle to grow by 0.9% in 2001 and 0.5% in 2002, following 4.2% growth in 2000); investment has sharply fallen back, taking the brunt of profit reductions, weakening demand and the bursting of the speculative bubble in the information technology and communications sectors; and the 11 September attacks which served to amplify the situation that already existed.
Mr Solbes said that the fall in inflation (to 1.8% in 2002 and 2003), the low interest rates and the tax cuts that have already been decided by the Member States should have an impact in boosting household consumption, which the Commission sees as vital. It expects the above-mentioned factors to be sufficient to counteract the effects of the predicted rise in unemployment - the number of eurozone unemployed will rise by 500,000 in 2002 and only 3.3 million new jobs are expected to be created in 2001/2003, compared with 2.4 million in year 2000 alone. This hike in unemployment is expected to be short-lived, hitting 8.2% of the working population in 2003 (better than the 2001 figure of 8.3% which was itself the best figure in a decade).
Mr Solbes warned that EU growth would only really pick up in the second half of 2002, when the US economy takes off again. This means that there will be little increase in public deficits, from 0.3% of GDP in 2000 to 1.1% in 2001 and 1.4% in 2002, before falling to 1.0% in 2003. The deterioration will be particularly strong in Germany where the deficit "is forecast to reach 2.7% of GDP in 2002", close to the portentous figure of 3%. Mr Solbes does not see this as a cause for concern or a justification for imposing sanctions as it is due to falling growth, rather than an uncontrolled rise in expenses. "In France the deficit is forecast to widen to 2% of GDP in 2002. In Portugal the deficit is expected to be above 1.5% of GDP in both 2001 and 2002, while in Italy it is likely to remain at 1.2%. The other countries have smaller deficits or record a surplus".
Mr Solbes admitted that his predictions may well prove to be over-optimistic because the impact of the 11 September events may hit consumer confidence more seriously than expected. "As a consequence of 11 September, risk aversion increased, reflected in higher insurance premiums and transportation costs, but their impact on investment and trade is hard to estimate".
Economic forecasts for candidate countries
The Commission also adopted a report on the economic forecasts for the EU accession candidate countries. According to estimates on the thirteen candidate countries (including Turkey), the rates of growth in these countries have been noticeably revised downwards for 2001 and 2002, but to a lesser extent than for the Member States. Thus the average rate of growth of the candidate countries, if we exclude Turkey, will fall by around on percentage point to settle at 3.1%, in 2001 and in 2002. The slowdown is particularly noticeable in Poland, where internal demand is loosing steam due to a badly coordinated dosage of macroeconomic policies. On the other hand, the Czech Republic, Romania, and Slovakia should see faster growth over the two years, which was not the case in 2000, when growth was slowed by austerity policies. It is in Latvia, Estonia and in Romania that the rate of GDP growth should be the highest.
Though the acceleration in growth in Romania in 2000 is due, at first, to a budgetary recovery policy, the Commission expects to see it stifled by a serious economic reform programme. The economic slowdown following the two financial crises that affected Turkey appear to be far more marked than foreseen.
Mr. Solbes asserted that the relative weakness in these economies could in no way slow the enlargement process. It is right to make the distinction between the accession criteria and the economic situation, he said, recalling that the economic criteria require them to be capable of facing the pressures of competition in the internal market.