Brussels, 11/09/2007 (Agence Europe) - Although they do not appear to threaten EU economic performance for 2007, the current financial upsets are leading to uncertainty in the long term and could increase the slowdown in growth that preceded the figures the Commission presented on Tuesday 11 September. Although the commissioner for economic and monetary affairs underlined, during a press conference, the sound running of economic fundamentals, he did point out more pronounced risks to growth and even a change in the economic cycle. In the context of its interim seasonal forecasts, the Commission slightly revised its forecasts for growth downwards (2008 forecasts will be published on 9 November). Looking at the economic activity of seven of the main EU member state economies in France, Germany, Italy, the Netherlands, Poland, Spain and United Kingdom (80% of GDP in the EU) forecasts for EU GDP predicted growth in 2007 of 2.8% and 2.5% in the eurozone. This involves a “marginal revision” of a 0.1 percentage point compared to the economic forecasts made last spring (EUROPE 9421), declared, Joaquin Almunia, who also indicated a weaker than expected second quarter.
Examining the growth figures for the second quarter of the year, Mr Almunia affirmed: “We can conclude maybe that peak of the cycle is behind but we have still possibilities for a favourable situation in the coming quarters”. Real GDP growth in the Euro area stood at 0.3% and 0.5% in the EU (as opposed to 0.7% for the previous quarter in the two zones). This slowdown has perhaps marked a turning point that could be increased by the recent turbulence on the financial markets. Performances in France, Italy and the Netherlands in this respect are particularly disappointing.
“I insist: the fundamentals remain robust”, asserted the commissioner, pointing out the scale of company profits, good growth in jobs and satisfactory performances in the world economy. Internal demand is expected to remain the main driving force for growth in GDP. The Commission has also identified signs of improvement on the labour market (by around 7%, the unemployment rate is at its lowest rate for two decades).
Projections for inflation have been revised upwards for 2007 in both areas: to 2.2% in the EU and 2.0% in the Euro area, which represents a 0.1 percentage point compared to last May. Consumer price inflation amounted to 1.9% in the first half of 2007 in the Euro area, broadly in line with the spring forecast and declining from the previous year. In contrast, core inflation (food and energy prices) increased by a 0.3 percentage point between December 2006 and July 2007, indicated the Commission. The level is expected to remain “under control” until the end of the year, the Commission added.
Germany. Slight fall (to 2.4% in annual terms for 2007 as opposed to spring projections of 2.5%) but according to Commissioner Almunia, the German economy remains robust. Due to the effect from the rise in VAT last January, the rate of inflation is expected to reach 2.1% this year (as opposed to 1.9% the previous quarter).
Spain. Spanish growth still remains healthy and unchanged compared to May forecasts (at 2.7% growth in GDP for this year). The best results from the first quarter are expected to offset the existing risks to the second half of the year, explained the commissioner. Inflation is high but it is still practically the same at 2.5% compared to the previous 2.4%.
France. This is the most significant fall in the forecasts with annual growth of 1.9% as opposed to 2.4% in May. The slowdown in the economy during the second half is the main reason for these “very bad figures”, affirmed Mr Almunia, who chose not to make any comment about the impact of these 2007 projections on figures for 2008 or say anything about France's presentation of an updated stability programme. He did say, however, that there could be a certain impact on internal demand which also increases import prices.
Italy. Italy's growth for 2007 is at the same rate as France's with 1.9%. The commissioner pointed out that this, however, was expected and it does not question the hypothesis of budgetary correction in the country. Almunia noted that although growth in the second quarter was only 0.1%, business confidence had strengthened.
Netherlands. Results for the second quarter (0.2%), are disappointing but the Commission is expecting a rebound in the second half (+0.7%), which should reach 2.5% (a 0.3% fall compared to spring forecasts). Projections for inflation have increased from 1.5% to 1.7%.
Poland. The growth situation is “very brilliant” with forecasts reviewed upward to 6.5%, i.e. 0.4 percentage points more than in May. The Commission will look at the situation of Poland's public finance in November after the Polish elections scheduled for 21 October, Mr Almunia said.
United Kingdom. Expectations are on the rise also for GDP (2.9% compared to 2.8% before) and Britain's inflation rate (2.4% compared to 2.3%) despite more restrictive financing conditions. (ab)