Brussels, 07/05/2007 (Agence Europe) - Two further years of prosperity are in prospect for economic activity in Europe, which should use the favourable conditions to stabilise public finances and growth of employment, Economic and Monetary Affairs Commissioner Joaquin Almunia told press. Following a first upward revision in February, in a mid-term review of seasonal forecasts (see EUROPE 9368), the Commission again on Monday said it expected growth to be higher in 2007 and 2008 by ½ percentage point compared with the figures given in autumn 2006 (see EUROPË 9300).
This year, GDP is expected to rise to 2.6% in the eurozone and 2.9% in the EU27, and growth next year is expected to be 2.5% and 2.7% respectively. In 2006, a record year, growth was 2.7% in the countries of the eurozone and 3% in the EU as a whole. It is expected, too, that prices will remain stable, with inflation at 1.9% for the two coming years in the eurozone and 2.2% in 2007, then 2.1% in 2008 for the EU27. These favourable conditions will help create 6 million new jobs in the eurozone and almost 9 million in the EU as a whole and will see unemployment levels fall to 7.3% in 2007 and 6.9% in 2008 (7.2% and 6.7% in the EU27). General government deficits are also expected to fall from 1% of GDP in the eurozone and 1.2% in the EU27 in 2007 to 0.8% and 1% in 2008, compared with 1.6% and 1.7% respectively in 2006. Germany, Greece and Malta are, therefore, approaching the end of the excessive deficit procedure.
These forecasts are helped by the better-than-expected 2006, when growth was at its strongest in six years. Domestic demand for 2007 and 2008 will be more dynamic, based, among other things, on investment in fixed assets, Mr Almunia said. Private consumption is also expected to rise, spurred by a substantial improvement in the labour market situation, he added, welcoming the very strong job creation. In the next few months, Eurostat will publish new unemployment figures for Germany showing an increase in unemployment levels which will impact - though not massively - on the overall figure, Mr Almunia said, however. The improvement in market conditions will push wages up, leading to an increase in unit wage costs, but productivity will continue to grow at more than 1% over the next two years, the commissioner also said. In these conditions, the Commission does not expect any second round effect on prices, even though it notes a slight increase in structural inflation, because of the VAT hike in Germany.
As far as public finances are concerned, the windfall gain was greater than expected and suggests a general reduction by 2008 (see above). Debt is expected to be brought from 69% of GDP in the eurozone and 61.7% in the EU27 to 66.9% and 59.9% respectively in 2007 and then to 65% and 58.3% in 2008. However, in spite of this reduction and the current period of low interest rates, the impact of debt servicing on public finances remains too high, warned Mr Almunia. He said that Greece and Italy, where debt is running at more than 100% of GDP, every year pay the equivalent of 4.4% and 4.7% of GDP to finance it.
Germany, Greece and Malta nearing the end of excessive debt procedure
Next week, on 16 May, the College of Commissioners will consider proposals to end the excessive debt procedures against Germany, Greece and Malta. Berlin is expected to record a deficit of 0.6% of GDP in 2007 (compared with 1.7% in 2006), Athens will reduce its debt to 2.4% (compared with 2.6% last year) and Valetta will reduce its debt to 2.1% (compared with 2.6%). Italy is expected this year to come below the Growth and Stability Pact (GSP) ceiling, but the end to the procedure against it is not expected before the next spring forecasts in May 2008, when the Commission will have definitive figures for 2007 and will be able to determine whether or not the correction is sustainable. In 2007, Portugal will, then, be the only eurozone member state to have a deficit higher than the GSP reference value, with 3.5% (3.9% of GDP in 2006). Lisbon could find itself on 3.2% in 2008, the year when the Council forecast a return below 3%, warned Mr Almunia, who expects to learn of the adjustments planned by the Portuguese authorities in the 2008 budget.
Apart from Malta, the other non-eurozone member states now have a more detailed timetable for the continuation of the procedure in which they are involved. The Czech Republic, which fell below 3% last year, is expected to record an excessive debt this year (3.9% of GDP) and next year (3.6%), Mr Almunia said. This case will be examined at the end of May, before those of Romania (3.2% for the two coming years, compared with 1.9% in 2006) and Hungary in June. Budapest, which recorded a deficit of 9.2% in 2006, is expected to bring its deficit down to 6.8% in 2007 and 4.9% in 2008. In mid-June, the Commission will assess the measures taken to come back below 3% by the end of 2009 at the latest (see EUROPE 9283). Poland, however, will not correct its excessive debt in 2007 (still standing at 3.4% and 3.3% in 2008, as had been forecast by the Council (see EUROPE 9375), the Commissioner then highlighted. If the deficit is just over the 3% reference value and a downward trend can be seen for the future, the GSP allows for account to be taken of the impact of pensions to possibly end the procedure, Mr Almunia noted, saying he planned to study the measures put in place by Warsaw in September. After the summer, too, the Commission will give its decision on the United Kingdom, which, with a deficit of 2.8% in 2006 and 2.6% in 2007, will very probably see an end to the procedure, in the course of which it took the measures expected of it (see EUROPE 9283). (ab)