Brussels, 04/04/2005 (Agence Europe) - The modest results of the European economy during the second half of last year are a burden on the growth forecasts for 2005, the European Commission stresses in its spring economic forecasts. According to its analysis, growth in the euro zone will be 1.6% and that in the EU25 2% in 2005, while it was 2% and 4% respectively in 2004. In 2005, the average public deficit in the euro zone is expected to fall very slightly to 2.6%, before returning to last year's level (2.7%). In the EU25, the average public deficit will remain unchanged in 2005 (2.6%) and will be 2.5% in 2006. According to the Commission's forecasts, the situation in Germany seems tricky this year, with a deficit of 3.3%. However, under the effect of a likely rise in domestic demand and good export behaviour, the German deficit should fall below the 3% ceiling in 2006. Although the launching of excessive deficit procedure against Germany is not on the immediate Commission agenda, the public finance situation in Italy and Portugal will soon require decisions. These decisions will, however, only be taken once discussions held between the authorities of these countries and Eurostat on notification of budgetary data for 2004 have been finalised (EUROPE N.8912). At any rate; increased surveillance of the budgets of these Member States should take account of recent adjustments to the Stability and Growth Pact which do not require changes to regulatory texts.
Before reaching 2.1% and 2.3% next year, GDP growth should rise with difficulty to 1.6% in the euro zone and 2% in the EU25 during 2005. Despite these modest figures, the growth structure is “far more positive” than it has been, the Commissioner for Economic and Monetary Affairs told the press on Monday. According to Joaquin Almunia, in coming years recovery will be less based on external demand and more on domestic demand and on the large rise in investment. Since 2002, exports from the euro zone (except Germany) have progressed at a rate below that of global trade, which has entailed a “loss of competitiveness”, the Commissioner stressed, considering that this loss of market shares will extend into 2006. In his view, this situation is not solely due to the dollar's depreciation compared to the euro, which had begun in November 2004, but mainly to the “rise in unitary labour costs in a series of countries in the euro zone” and to the growing presence of certain emergent countries (mainly China) on the markets of industrialised countries.
In addition to the United Kingdom (2.8% in 2005 and 2006) and Sweden (3% and 2.8%), all the Member States from the latest enlargement (except Malta) have rates that are very clearly above the European average. Within the euro zone, Ireland (4.9% and 5.1%), Luxembourg (3.8% and 4%) and Finland (3.3% and 2.9%) should record growth of over double the average of the twelve States which adopted single currency. Italy (1.2% and 1.7%), the Netherlands (1% and 2%), Portugal (1.1% and 1.7%) and, above all, Germany (0.8% and 1.6%) will, on the other hand, have lower results. Generally speaking, these forecasts are accompanied by a number of risks, it is noted in the Commission's economic analysis. The first concerns the rise in oil prices, which had already affected growth end 2004, although the current estimation of the price per barrel of crude ($50.9 in 2005 and $48 in 2006) could be reviewed upward. Uncontrolled movements in exchange rates and the fall in consumer demand appear among the other risks to the downward Commission forecasts.
Within the next two years, the European Commission tables on the creation of three million jobs with an overall rise of 0.7% in 2005 and 0.8% in 2006 compared to 0.5% in 2004. This should not, however, entail a major fall in the number of job seekers in the EU as the rate of unemployment will remain at 9% in 2005 before falling to 8.7% in 2006. For next year, the forecasts nonetheless show a rise in unemployment rates compared to 2004, in a series of countries: Ireland, Luxembourg, the Netherlands, Portugal and Hungary.
In terms of inflation, prospects are in line with the targets of the European Central Bank, which is to keep price rises to 2% of GDP or close to it and which are fairly homogenous in different Member States. Euro zone and EU-25 inflation rates are expected to fall by 0.2 percentage points from 2.1% in 2004 to 1.9% in 2005, before reaching 1.5% and 1.7% in 2006 respectively.
The state of public finances is very different in one Member State to another. Four Member States in the Euro zone are expected to continue in this situation in 2005: Germany, Italy, Portugal and Greece. For the latter, the Commission has not taken into account supplementary measures presented by Athens for 2006 under the excessive deficit warning it received (Article 104§9 in the treaty). The Commission will be giving its opinion on the updated stability programme in Greece on Wednesday and at this stage envisages a deficit of 4.5% in 2005 and 4.4% in 2006.
Asked about the impact of weal growth on the German budgetary deficit, Commissioner Almunia explained that if in 2005 there proved to be a “slowdown”, 2006 would be categorised by an “upturn” in activities in Germany. Thanks to increased consumer demand (later than in other EU countries), leading to increased revenues, Germany is expected to be able to reduce its deficit in 2006 (to 2.8% as opposed to 3.3% in 2005) without having to use new measures.
France, however, which will have 2% growth in 2005 and 2.2% in 2006, is expected to respect the public deficit threshold this year (3%) but is in danger of reaching a deficit of 3.4% in 2006 if new measures are not taken, remarked Mr Almunia. He confirmed that they would continue to monitor public finance in these Member States and that decision would be possible in the coming months “but not in the next few weeks”.
Italy and Portugal whose respective deficits are 3.6% and 4.9% in 2005 and 4.6% and 4.7% in 2006, procedures are imminent? The Commissioner did not confirm this and underlined that he did intend to show that those who protested that the end of the Stability Pact had come, were wrong. If standards were those that were currently in force at the date of application rules amendments of the pact, Mr Almunia did recognise that this involved interpretation of the margin for the Commission's appreciation and that it could introduce criteria that corresponded to elements of consensus, which did not require text amendments.
Beginning excessive deficit procedures against Italy and Portugal, however, did depend on the final conclusions of negotiations between Eurostat and the authorities in these two countries on the calculation of certain budgetary data for 2004 and for previous years, explained Mr Almunia. The Italian public deficit is “clearly above 3%” and the Commission should “decide as soon as possible” he announced, judging that the situation was “worrying”, as the Commission was “more pessimistic” than the Italian government on the impact of the measures adopted in the 2005 budget. In Portugal's case, decisions were also expected but only after evaluation of the updated stability programme which the new Portuguese government was expected to transmit to the Commission “in the coming weeks”, indicated the Commission. The report is available at the Commission website: http: //http://www.europa.eu.int/comm/economy_finance/ publications/european_economy/forecasts_en.htm).