Brussels, 14/09/2009 (Agence Europe) - On Monday 14 September, European Commissioner for Economic and Monetary Affairs Joaquín Almunia presented the European Commission's most up-to-date economic forecasts: “For the first time since the beginning of the Lehman Brothers crisis, the US bank that went bust a year ago, we are able to present forecasts that are tainted with optimism”. The Commission is now counting on positive GDP growth in the EU27 during the third quarter of the year (+0.2%) but in keeping with its forecasts of last May, it is continuing to predict a contraction in EU GDP of 4% this year. The Commission's forecasts for inflation in 2009 also remain unchanged at 0.9% in the EU and 0.4% in the euro area.
The world economy is no longer in free-fall and that is definitely good news. Commissioner Almunia noted that signs of improvement at an international level are much more evident. He also praised the coordinated action of countries in the G20. Recent data on trade and industrial production, as well as business and consumer confidence indicators are encouraging, affirmed the Commission. The merging economies of Asia, especially China, appear to be pushing the recovery along. The European commissioner asserted that the US, Japanese and Brazilian, as well as certain European economies, are “on positive ground” for the first time since the beginning of the crisis. Interest rates will remain low and the exchange rate for the euro and oil will increase.
4% fall in GDP in 2009. The fall in EU GDP slowed significantly in the second quarter (to -0.2% quarter-on-quarter (q-o-q) from -2.4% in the first quarter of 2009). The return to positive growth is expected in the third quarter of the year (+0.2%), before an estimate of +0.1% in the fourth quarter of the year (during its forecasts last May, the Commission predicted a contraction in the economy in the third and fourth quarters). Germany and France are coming out of it quite well, with +0.7% and +0.4% in third quarter GDP growth respectively. Mr Almunia pointed to the positive impact of the recovery plan (European and EU countries) and monetary policies carried out. The Commission is forecasting a 4% reduction in GDP this year in the EU: -5.1% in Germany, -3.7% in Spain, -2.1% in France, -5.0% in Italy, -4.5% in the Netherlands, -4.3% in the United Kingdom and +1% in Poland.
Mr Almunia also commented on the improved situation in the financial markets. The Commission, however, added a cautionary note. Disparities in dividends are getting smaller but the flows in credit are not moving in a normal way. The Commission was concerned that “investment (companies and households) is still bad and we can see that the crisis, with a two or three quarterly delay, is now having very marked effects on unemployment”. 1.4 million people lost their jobs during the second quarter in the EU, 702,000 in the eurozone (see other article based on Eurostat figures).
Low inflation. The rate of consumer-price inflation declined in the first half of 2009, reaching a trough of 0.2% in July in the EU (and as low as -0.7% in the euro area), pushed down mostly by the reversal of past hikes in energy and food prices. But with this effect coming to an end and commodity prices moving higher, the inflation rate is set to increase towards the end of the year. However, the Commission points out that there are no domestic inflationary pressures as there is still substantial slack in the economy and wage growth is expected to decelerate. Taken together, the forecast for inflation remains unchanged from the spring forecast at 0.9% in the EU in 2009 (and 0.4% in the euro area).
Germany. After a very bad first quarter (-3.5%), GDP in the country has improved, Mr Almunia noted. The Commission is forecasting +0.3% in the second quarter and +0.7% in the third quarter, thanks to recovery measures that have stimulated consumption and significantly improved external and international trade. A peak in inflation is expected in the last quarter of the year (+0.6%). Annual inflation rates in Germany are expected to reach 0.3%.
Spain. The pace of adjustment is a little slower than the EU average due to structural imbalances and the impact of the crisis (household debt, crisis in real estate, very high unemployment etc). At the same time, the Commission has noticed a fall in the cost of credit and an improvement in consumer confidence. Spain will continue to have negative growth figures at the end of the year (-0.4% in the third half, -0.2% in the fourth) but over the whole year, the fall in Spanish GDP (-3.7%) will be less than that of the EU. Inflation is negative in the second quarter (-0.7) and in the third (-0.8) but is expected to be positive in the last quarter (0.9%). Annual inflation in Spain is expected to be 0.
France. Exports and individual consumption (which are quite crisis resistant) means that GDP growth in France is positive again in the second quarter (+0.3%). The Commission believes that there will be a rise in French GDP of between 0.4 and 0.3 in the 3rd and 4th quarters. The fall in French GDP this year is expected to rise to 2.1%, whereas the Commission's forecasts last May predicted a fall of 3%. Inflation in France is expected to be 0 in annual slippage.
Italy. A small improvement was observed as from the middle of the year, following a very deep recession. Growth figures are from -0.5% in the second quarter, then +0.2 in the third and +0.1 in the fourth. Almunia affirmed that confidence had recently improved and exports were expected to benefit the recovery in international trade. Inflation in Italy is expected to be 0.9% in 2009 and no area is expected to be in “negative territory in any quarter this year”, stated the commissioner.
Netherlands. In the fourth quarter of 2009, recession is expected to “come to an end” in this country (GDP of 0%, following -0.4% in the third quarter) “a little later than in France, Germany and Italy”, explained the commissioner. The fall in GDP was very pronounced during the crisis, given the dependency of the country's economy on developments in international trade. Inflation in the Netherlands will be 1.1%, a little under the EU average (0.9).
Poland. Poland's GDP is expected to remain positive all year (0.3 in the first quarter, 0.5 in the second, 0.1 in the third and 0 in the fourth) and the country is expected to be the only EU country to have a rise in GDP (+1%) over the whole of the year. Inflation is expected to reach 3.8% this year.
United Kingdom. It is not until the third quarter that growth in this country is expected to come out of the red (+0.2%, after -0.7% in the second quarter). The growth in public spending will have a moderate effect on growth. The fall in the value of the pound has given a boost to the economy and inflation (1.9% forecast for 2009, above the EU average).
Getting out of the crisis. “We need to continue implementing the recovery measures announced for this year and 2010, and accelerate the repair of the financial sector to make sure banks are ready to lend at reasonable terms when companies and households resume their investment plans. And we need to define a clear, credible and coordinated 'exit' strategy to put public finances progressively back on a sustainable path and to find the necessary resources to increase Europe's growth and jobs potential", said Joaquín Almunia.
Recovery plan. According to the Commission's forecasts, the recovery measures taken by the EU and the member states accounted for 1.4 of the EU's GDP in 2009, with 1.1% more planned in 2010, 2.5% in total over 2009 and 2010 (and a total of 2.4% in eurozone GDP). In reply to questions from the press, the commissioner said that “before the summer we talked about a 1.8% packet in GDP”. By including more economic stabilising effects, recovery measures accounted for 5.5% in the EU's GDP for 2009 and 2010. (L.C./transl.rh/rt)