Brussels, 17/11/2005 (Agence Europe) - Although the second half of 2005 is looking better than the first, the very moderate growth levels of the first half of the year have led the Commission to reduce its overall forecasts compared to those of April. According to the autumn economic forecasts, which Commissioner Almunia described as "well-balanced" when speaking to the press on Thursday, in 2005, the euro zone is set to grow by 1.3% and the EU of 25 by 1 .5%. This downward revision was expected and can mainly be put down to oil prices, the Commissioner for Economic and Monetary Affairs confirmed, hoping for an upturn in growth potential in 2006, with 1.9% for the euro zone and 2.1% for the EU of 25, and 2.1% and 2.4% respectively for 2007.
Low interest rates, higher levels of cash, greater profit margins for business, a robust world environment (4.3% in 2005 and 2006, followed by a downturn in 2007), are among the factors which explain this new confidence and increasing internal demand, particularly in private investment, Mr Almunia explained. For investments, he envisages a "positive perspective", with growth of almost 3% in 2006 in 2007. At the same time, we are likely to see a fall in unemployment rates to 8.1% in both zones in 2007, with the creation of 6 million new jobs by then, 4.5 million of which will bein the euro zone.
Under the effect of the increase in oil prices, nominal inflation is set to reach 2.3% in both zones in 2005, falling off slightly to a level of 2.2% in 2006, then dropping further to 1.9% in the EU of 25 and 1.8% in the euro zone in 2007. However, underlying inflation (excluding energy prices and processed foodstuff prices), which stands at 1.5% this year, is likely to remain relatively stable, as the Commission predicts no further increases in crude oil prices. "Thanks in part to the continuing wage restraint", the second-round effects (on salaries) "remain extremely limited", said Mr Almunia. In the absence of an increase in oil prices, the gradual upturn in private consumption, which closely follows the development of consumer confidence, could then grow stronger.
When asked about a possible increase in interest rates in the euro zone, Mr Almunia pointed out that this decision was up to the ECB, whose "independence (...) is an enormous advantage, which guarantees us price stability and low interest rates", and must not be called into question.
We are "not satisfied with this development", Mr Almunia admitted, with reference to the budgetary performances of the Member States, whose public deficits are set to increase this year by 0.2% in the euro zone and 0.1% in the EU of 25, to reach 2.9% and 2.7% respectively. This improvement is set only to be marginal in the next two years, the report predicts, noting that among the Member States with excessive deficits, Portugal, Greece, Germany and Italy should, to different degrees, reduce the side-slipping of their public finances in 2006, but still not quite sufficiently. In France, the deficit is set to increase again in 2006, due to the expiry of an exceptional measure implemented in 2005 between 2005 and 2006, deficits are set to increase in Hungary (from 6.1% to 6.7%) and the Czech Republic (from 3.2% to 3.7%), whereas in 2006, the United Kingdom and Poland are both set to exceed 3% (3.3% and 3.6% respectively). Cyprus will correct its deficit in 2005 (2.8% compared to 4.1% in 2004), followed in 2006 by Slovakia (down to 3% from 4.1% in 2005) and Malta (down to 3% from 4.2%), according to the Commission.
According to the forecasts, the German deficit will stand at 3.9% in 2004, 3 .7% in 2006 and 3.3% in 2007, but we must take account of the impact of the programme of the future government, and we will have to adjust our forecasts, said Mr Almunia, who is "extremely pleased with the commitment of the new coalition, which hopes to consolidate the budget" and come into line with Maastricht in 2007. Further to contact with the new German finance minister, Peer Steinbrück, the Commission is likely to decide on 21 December how it should proceed against Berlin. "I can already tell you that our assessment (...) will be that measures to fight the deficit have not been sufficient in Germany, and will recommend that the excessive deficit procedure be kept in place", explained Mr Almunia. The assessment of Italy's implementation of recommendations of the Council will take place in January 2006, Mr Almunia announced, going on to state that he expected "very clear explanations" of Giulio Tremonti on various elements of the package provided for by the budget 2006. This means that the Commission will be able to get a clear idea of the state of Italian public finances, which it has seen slipping from a deficit of 4.3% this year to 4.6% in 2007, after a slight upturn to 4.2% in 2006. Whereas Eurostat has still to decide whether securitisation plans announced by the Greek government are in line with accounting rules, the Commission's forecasts do not take account of the effects of these measures for 2005 and 2006, as the Greek government had failed to take account of them in its forecasts for 2005 or for its draft budget, to be presented next Monday, Mr Almunia explained. According to the forecasts, the Greek deficit is set to reach 3.7% in 2005 and 3.8% in 2006 in 2007. The situation in Portugal is "very close" to the Council's recommendations, as Lisbon had been given three years (until 2008) to bring its deficit below 3%, Mr Almunia stressed, minimising the differences for 2007. Forecasts point to a deficit of 6% in 2005, 5% in 2006 and 4.8% in 2007. There is a greater disparity in the Commission's forecasts when it comes to France, and Commissioner Joaquin Almunia will be meeting Thierry Breton before the end of the month. The French government plans to bring the budget deficit back below 3% this year and 2.9% next year, but the Commission forecasts 3.2% in 2005 and 3.5% in 2006 and 2007. The difference is largely accounted for by different growth forecasts, said Almunia, wandering whether France was planning to take new measures to ensure it ends the 2005 tax year at 3%. He said any decision on excess budget proceedings against France would be taken in January 2006 at the latest.
Several Member States asked the Commission to suggest measures to suspend Cohesion Fund money for Hungary, said Almunia, to make Budapest face its financial responsibilities. Asked about the Hungarian prime minister's remarks that such a measure would be unfair, Almunia said the last ECOFIN Council had taken a very negative line on Hungary. Budapest's deficit is forecast to reach 6.1% at the end of 2005 and might even rise to 6.7% in 2006 and 6.9% in 2007. Almunia admitted it was a very difficult situation and a very negative evolution, adding that it was yet time to take such measures, but the option existed.