Brussels, 19/01/2009 (Agence Europe) -Publishing its seasonally adjusted interim economic forecasts on Monday 19 January, the European Commission confirmed the gloomy outlook to prevail over the European economy in 2009. This exercise, which has been carried out early due to the crisis, and which is broader than usual, covering the economy of all 27 Member States of the EU, nonetheless forecasts a gradual upturn by the end of the year and positive growth in 2010.
The risks identified in the autumn economic forecasts (EUROPE 9774) have materialised and the downturn in activity registered at the end of 2008 is likely to continue in 2009 under the effect of the slow-down in world economic activities, the Commission notes. Growth in world GNI is set to drop from 3.3% in 2008 to 0.5% in 2009, before taking off again in the second half of the year to reach 2.75% in 2010. In Europe, the scenario judged most likely by the Commission follows this trend, with an upturn, albeit modest, starting in the second half of 2009. GNI is thus set to fall by 1.9% in the euro zone and 1.8 in the EU of 27, before rising by 0.4% in the euro zone and 0.5% in the EU in 2010 (compared to +0.9% and +1% respectively in 2008). The fall in trade, in manufacturing production and, in some cases, the weakening housing markets, will continue to make themselves felt throughout the year, whereas consumption and investment in the public sector will be the only components to give any kind of shot in the arm to the economy. The beneficial reduction in inflation, which will give a certain boost to private consumption, offers a hypothetical gleam of hope, because for the time being, it is the repercussions on employment and public finances which are of concern.
A particularly broad and deep recession. If five countries of the EU experienced recession in 2008 (Denmark, Estonia, Ireland, Italy and Latvia), 18 of them will register a drop in GNI this year, but with considerable differences (the same countries as last year plus Germany, Austria, Belgium, Spain, Finland, France, Hungary, Lithuania, Luxembourg, the Netherlands, Portugal, the United Kingdom and Sweden). Only Spain, Latvia, Lithuania and Portugal are likely still to be in recession in 2010, according to the Commission's analysis. Generally speaking, the differences in growth will remain fairly large from country to country. The Baltic States will be particularly hard hit this year (with drops in GNI of 4% in Lithuania, 4.7% in Estonia and 6.9% in Latvia), as will Ireland (5%). The British economy will shrink by 2.8% and the German economy by 2.3%. Spain, Italy and the Netherlands will each see a drop of 2% and France of 1.8%. All other countries will see positive growth in 2009, but their figures will be well below 2008 levels. The Slovakian economy set to top the table (+ 2.7%), followed by the Polish economy (+ 2%), the Romanian and Bulgarian economies (+ 1.8%) and the Czech economy (+ 1.7%).
It is also worth noting that in 2009, the GNI of the United States will drop by 1.6% and Japan's by 2.4%, according to the Commission. In 2010, the American economy will bounce back to + 1.7%, whilst Japan's will remain down by 0.2%.
Improving inflation. The rapid drop in inflation is set to continue and contribute to attenuating the reduction in household consumption. The increase in prices, which stood at above 3% last October, has slowed down considerably, to reach 1.6% in the euro zone in December. The level of inflation will continue to fall sharply, before stabilising towards the end of the year. The inflation rate in 2009 is likely to be 1% in the euro zone and 1.2% in the EU of 27, rising to 1.8% and 1.9% respectively in 2010, explains the Commission, which by no means constitutes a deflationary scenario, according to the Commissioner for Economic and Monetary Affairs. These levels will, in any event, be in line with the definition of price stability of the European Central Bank (ECB), Joaquin Almunia told a press conference on Monday. The Commission notes that the differences in inflation rates between the Member States will start to level off, particularly in the countries which joined most recently.
The impact of the relaunch measures. Seventeen Member States have adopted bank rescue plans, with the objectives of stabilising financial markets, stimulating inter-bank loans and re-establishing credit lines for businesses and individuals. Although the first two objectives have been met, the third has not, despite a more favourable monetary policy, stressed Mr Almunia, who wishes to see private investment and consumption take off again as soon as possible. 18 Member States, moreover, have adopted budgetary incentive measures equivalent to 1% of GNI 2009 and 0.5% of GNI in 2010, at this stage. Although it is "too early" to assess the impact of these measures, the Commissioner believes that they are "enough", reiterating that they must be implemented swiftly.
The worsening employment market. After favourable developments in the years 2005-2007, unemployment is likely to rise over the next two years. Having had an unemployment rate of 7.5% in 2008, the eurozone will see a rate of 9.3% in 2009 and 10.2% in 2010. The tendency is the same across the EU, with 8.7% this year and 9.5% next, compared to 7% last year. "We will be reaching levels that we have not seen since the 1990s", Mr Almunia observed.
The countries the hardest hit by turbulence on the housing market are the same ones which have seen the highest rises in their unemployment rates so far (Stein, Estonia, Ireland and Latvia). They are also set to be the worst affected over the next two years, although none of the countries will escape this particular problem.
Overall deterioration of public finances. In 2009, the budgetary balances are set to worsen in almost all member states. The average of deficits is likely to double this year, to reach 4.4% in the EU (compared to 2% in 2008) and 4% in the Eurozone (compared to 1.7% in 2008). The deficit problem will continue to bite in 2010 (with figures of -4.8% and -4.4% respectively). Only three countries of the EU are still capable of returning a budgetary surplus this year: Bulgaria (+ 2%), Luxembourg (+ 0.4%) and Finland (+ 2%).
Seven countries of the eurozone will have a budgetary deficit greater than 3% of GNI in 2009: Spain (-6.2%), France (-5.4%), Greece (-3.7%), Ireland (-11%), Italy (-3.8%), Portugal (-4.6%) and Slovenia (-3.2%). Outside the eurozone, six countries will reach or exceed the reference threshold of the Stability and Growth Pact (SGP): Estonia (-3.2%), Latvia (-6.3%), Lithuania (-3%), Poland (-3.6%), Romania (-7.5%) and the United Kingdom (-8.8%). It is worth noting, however, that Hungary, which joins the United Kingdom under an excessive deficit procedure, is set to get back below 3% in 2009 (with a level of -2.8%, compared to -3.3% in 2008). The Commission will examine most of the updated stability and convergence programmes of the member states on 18 February and will then decide whether to launch excessive deficit proceedings against countries whose levels are neither temporary nor close to the GSP limit. The finance ministers will then take possession of these recommendations during the Ecofin Council of 10 March.
For more information and a country-by-country analysis: ttp: //ec.europa.eu/economy_finance/pdf/2009/interimforecastjanuary/interim_forecast_jan_2009_en.pdf. (A.B. /transl. fl)