Brussels, 09/07/2002 (Agence Europe) - In the second quarterly report on the euro-zone, adopted on Tuesday, the European Commission confirms the gradual economic recovery that has taken place since the spring and foresees faster recovery during the third quarter of the year. At the same time, it is concerned by the recent deterioration in the budgets of certain Member States.
The report highlights that recovery broadly follows the course predicted in the Commission's Spring Forecasts and in the first issue of the Quarterly Report released in March. The anticipated improvement of domestic demand has not yet materialised, states the report, indicating that the stronger than expected global economic environment has largely offset the weakness in domestic demand. In the separate forecasts published the same day by the services of Commissioner Pedro Solbes, the Commission predicts a rise of 0.3 to 0.6% in GDP during the second quarter and a 0.7 to 1.0% rise during the third.
In the editorial to this document, Mr Solbes writes that, since January, the "euro area has experienced gradual recovery since the beginning of the year, which gathered pace during the spring and is set to accelerate as the year progresses". Furthermore, he considers as "worrying" the fact that the latest information available on the implementation of budgets confirms a weakening of budgetary positions in several Member States. He goes on to add that "the budgetary slippages which accumulated over the 2001-2002 period mean that several Member States, particularly those with a significant deficit, will have to make further adjustment efforts to meet their commitments". For 2002, the Commission tables on a public deficit in the euro zone of 1.5% of GDP, that is, 0.2% more than in 2001 and 0.3% more than what had been announced by the Member States in their stability programmes.
Furthermore, the Commission confirms that inflation is receding (although it does express concern about the 3.3% rise in May this year for prices in the services sector), and repeats that the late appreciation of the euro will help to contain inflationary pressure. The Commission considers that the recent rise in the exchange rate is conform to most of the estimates for the euro's equilibrium value. "A stronger euro will shift demand to the domestic sector and provide the foundation for sustainable and balanced global economic recovery", the report reads.
The report finally contains a chapter devoted to current payments and to the euro exchange rate. It is indicated that the past fall in the euro has allowed competitiveness to increase but that its recent rise in value should not erode the market shares immediately but only later on. The Commission adds that the confidence of the financial markets seems to have become more in favour of the euro over recent weeks.