|The EU27 includes Belgium (BE), Bulgaria (BG), the Czech Republic (CZ), Denmark (DK), Germany (DE), Estonia (EE), Ireland (IE), Greece (EL), Spain (ES), France (FR), Italy (IT), Cyprus (CY), Latvia (LV), Lithuania (LT), Luxembourg (LU), Hungary (HU), Malta (MT), the Netherlands (NL), Austria (AT), Poland (PL), Portugal (PT), Romania (RO), Slovenia (SI), Slovakia (SK), Finland (FI), Sweden (SE) and the United Kingdom (UK).
The European Commission said today that the EU recovery is taking hold but
progress in uneven and despite the Irish debt crisis, it has almost doubled the
forecast for Eurozone growth in 2010. The Irish economy will grow by just 0.9%
autumn forecast, the Commission said Eurozone economic growth this year
would likely be 1.7%, nearly double its spring forecast of 0.9%. However, growth
is expected to moderate next year to 1.5% as the withdrawal of stimulus measures
and a slowing of the global recovery impact demand. Economic activity s expected
to pick up again in 2012 to 1.8% as the private sector begins to take up the
slack from the public sector's retrenchment.
The Irish economy will grow by just 0.9% next year compared with a target of
1.75% of GDP in the Government's four-year plan which was published last week.
The Commission is predicting a growth rate of 1.9% for 2012, compared with the
Government's projection of 3.25%. The peak year will be 2012, where the
Department of Finance sees growth of 3.2%, falling back to 2.75% in 2014.
Growth in Germany will slow in 2011 from 3.7% this year to 2.2%. France,
Europe's second largest economy is expected grow by 1.6% this year and next
while the UK economy will grow more than previously forecast in 2011 as exports
improve, the European Commission said.
Gross domestic product will increase 2.2% in 2011, compared with a May forecast
of 2.1%. Growth this year will be 1.8%, more than its interim estimate in
September of 1.7%.
With the economic recovery taking hold in the EU, labour-market conditions are
expected to slowly improve over the forecast horizon, as is the budgetary
situation. The unemployment rate is projected to fall to around 9% in 2012, with
the public deficit declining to about 4¼% of GDP. Developments across member
states are nevertheless set to remain uneven.
European Commissioner for Economic and Monetary Affairs, Olli Rehn said:"The economic recovery has taken hold. I am encouraged by the prospect that
employment is finally set to improve next year in Europe. Public deficits are
starting to decline thanks to the consolidation measures taken and to the
resumption of growth. However, this recovery is uneven, and many member states
are going through a difficult period of adjustment. A determined continuation of
fiscal consolidation and frontloaded policies to enhance growth, are essential
to set the sound basis for sustainable growth and jobs. The turbulence in
sovereign debt markets underlines the need for robust policy action."
Broadly favourable developments so far
In line with the characteristics of previous recoveries following financial
crises, the EC says the current upturn is proving rather muted overall. That
said, the economic situation in the EU has significantly brightened of late,
with GDP growth in 2010 so far exceeding expectations, especially in the second
quarter. The recovery also appears to be broadening out. While export growth –
the first stage of the traditional recovery pattern – has been solid for some
time, the EU economy is now entering the next phase - whereby the pick-up in
exports starts to spur (equipment) investment demand.
A gradual and uneven recovery
With the projected slowdown in global activity dampening export growth and
temporary supports running their course, near-term prospects for the EU economy
appear more subdued. The contribution of net exports to GDP growth is set to
diminish over the forecast horizon; whereas the contribution of domestic demand
is set to increase, owing to a gradual firming of investment and private
consumption growth. On the investment front, improvements in the capacity
utilisation rate and the profit situation of firms are among the factors
expected to support growth, while ongoing balance-sheet adjustment and fiscal
consolidation are set to act as constraints. As for private consumption, a
slowly improving employment outlook, moderate income growth and subdued
inflation underlie the projected pick-up, though consolidation and deleveraging
on the part of households are set to have a dampening effect here too.
While the recovery is becoming increasingly self-sustaining at the aggregate
level, progress across member states remains uneven, with the recovery set to
continue advancing at a relatively fast pace in some, but to lag behind in
others. This reflects differences in the scale of adjustment challenges across
economies and ongoing rebalancing within the EU and Eurozone.
Labour-market conditions and public finances start to improve
Today's report says developments in the labour market typically lag those in GDP
by half a year or more. In keeping with this pattern, recent months have seen
labour-market conditions start to stabilise in the EU, with a modest improvement
expected over the forecast horizon. Employment growth of almost ½% and around ¾%
is expected in 2011 and 2012 respectively, while the unemployment rate is
projected to gradually fall, from some 9½% this year to about 9% by 2012.
Overall conditions are set to remain weak though, reflecting, inter alia, the
unwinding of policy measures taken in response to the recession and ongoing
structural adjustment, not least in the public sector.
Some improvement is also evident on the fiscal side, with around half of EU
member states set to post a lower general government deficit this year than in
2009. As stimulus measures come to an end and the consolidation phase
increasingly takes hold, the deficit is projected to fall in 24 member states
next year. For the EU as a whole, a deficit of slightly above 5% of GDP is
expected in 2011, with a further decline of about 1 percentage point in 2012 as
the recovery gains ground. The debt ratio, however, is set to remain on an
upward path over the forecast horizon.
Inflation remains subdued
Relatively subdued consumer-price inflation is in sight in both the EU and
Eurozone over the coming period. HICP (harmonised index of consumer prices)
inflation is projected to average 2% in the EU this year and next, easing to
around 1¾% in 2012 (for the Eurozone, a rate of 1¾% is expected in 2011-12). The
remaining slack in the economy, along with fairly moderate wage and unit-labour
cost growth are expected to keep inflation in check going forward,
notwithstanding slightly higher commodity prices and increases in indirect
taxation and administered prices in some member states.
High uncertainty, but broadly balanced risks
With uncertainty still high, risks to the EU growth outlook are not-negligible,
though they appear broadly balanced according to the Commission. On the upside,
the rebalancing of GDP growth towards domestic demand, and the spill-over from
the pick-up in activity in Germany to other member states, may materialise to a
greater extent than currently envisaged. Policy measures to tackle high deficits
and debt may also prove more effective than assumed in dissipating market
concerns, as well as in boosting confidence among business and consumers.
downside, the financial-market situation remains a concern, with further
tensions possible, as highlighted by the reappearance of stress in
sovereign-bond markets lately. Moreover, softer than projected external demand
cannot be ruled out, while fiscal consolidation could weigh more on domestic
demand in the countries concerned than expected. Risks to the inflation outlook
are also broadly balanced.