Brussels, 18/04/2005 (Agence Europe) - In its report on the economy of the euro zone in the first quarter of 2005, which was published on Monday, the Commission confirms its own analysis in support of its spring economic forecasts (EUROPE 8920). Although private consumption and investments rose 0.5% and 0.6% respectively during the last quarter of 2004, export growth fell to 0.5%. For the first months of this year, the figures confirmed an increase in internal demand and the end to the slowdown in growth of world trade, which should contribute to annual growth of 1.6%. The sturdiness of the economic should not, however, be overestimated, as demonstrated by the confidence indicators for business and consumers, the report adds.
Compared to the fourth quarter of 2004, growth is thus set to increase by 0.5% in the first quarter of 2005. The contribution to growth of euro zone exports should remain “somewhat modest”, in the analysis of the Director General of DG Ecfin, Klaus Regling, or even go into negative figures in the first quarter and remain around the zero mark for the rest of the year, according to the report. The growth of private consumption should, on the other hand, remain at 0.5% and that of investments could be around 0.8%. Although the long-term improvement in the profitability of businesses, company turnover and financing rates suggests better performances, investments will, however, remain below their potential level. Specific analysis of this point has allowed the Commission to forward one explanation and discard two others. According to Mr Regling, the current situation is not due to the effects of German unification on investment in the construction sector, nor to the increase in foreign direct investment- which is not happening “to the cost of internal investment”. The level of investments in the euro zone is more likely to be suffering at the hands of the slowdown in technical progress, the pace of which has “nosedived in recent years”.
If external demand played an essential role in euro zone performance in the past, growth today should depend on internal demand more strongly. The Commission's report notes that the share of euro zone exports in world trade has shown no systematic weakness in the last decade. However, additional market share acquired in 2000-2001 started to fall off in 2002-2003, which was in part due to the rise in value of the euro. The euro zone has shown a considerable level of specialisation in the pharmaceutical and automotive sectors, which has registered higher levels of exports than world trade, and the same is true of exports to countries of eastern Europe. Little specialisation in the field of high-tech industrial exports and few exports to the most dynamic Asian economies have, on the other hand, been a serious burden on commercial activities. The report also notes many differences between the Member States, which can be imputed to sectorial and geographical specialisations, and to the development of competitiveness in terms of prices and costs. The latter element is also true for 40% of the differences between the Member States of the euro zone. Generally, Austria, Germany and Poland registered a considerably higher growth in exports on average, and the performances of Italy, France and Greece were below average. More specifically, Ireland was able to take advantage of its specialisation in high-tech products, whereas Finland and the Netherlands had little specialisation. (For the report, see: http: //europa.eu.int/comm/economy_finance/publications/quarterly_report_on_the_euro_area_en.htm).