Recovery is still distant

Economy and employment: the realism of the Mid-Term Forecasts

Modest signals of recovery in terms of GDP – but not in terms of employment -, on which a situation of uncertainty continues to weigh heavily: this snapshot of the European economy is contained in the Mid-Term Forecasts published by the European Commission on 25 February. Germany and France are beginning to recover, while Spain is still mired in recession. Question marks also remain about exports and investments.“Strong and sustainable growth is needed”. “Though it is gaining ground, the economic recovery of the EU remains fragile”, says the European Commission in its Mid-Term Forecasts based on updated data from the major economies of the EU: Germany, France, UK, Italy, Spain, Netherlands and Poland, which together represent almost 80% of the Union’s gross domestic product (GDP). The Commission considers that in 2010 GDP “should grow by 0.7% both in the EU27 and in the euro zone” (the 16 member states that have adopted the single currency). “The projections on inflation also remain in large part unchanged” since the forecasts in November, namely, “1.4% in the EU27 and 1.1% in the euro zone”. Olli Rehn, Commissioner for Economic and monetary Affairs, making his debut in his new post, declared: “Restoring the European economy to the path of strong and sustainable growth ought to be our prime objective. To achieve it, we must work on two fronts: on the recovery of the economy and on the improvement of public finances”. According to Rehn, “the new Europe 2020 strategy, aimed at the modernization of our economies” (now being formulated and due to be at the centre of the summit of the 27 at the end of March), “ought to go hand in hand with the restructuring of public finances, so as to create the presuppositions for sustainable growth and the creation of employment”.The situation country by country. The document drawn by the economic services of the Commission reports that in the third quarter of 2009 real GDP “resumed growth, thus putting an end to the longest and deepest recession in the EU’s history”. “The exceptional measures put in place in the EU to tackle the crisis have played an important role” in this, triggering “a reversal of trend in the economy”. During the fourth quarter, “however, and as forecast in the autumn of 2009, the gradual disappearance of the effects of some temporary measures caused a deceleration of growth”. Rehn therefore painted a picture that, though showing some positive features, still remains overshadowed by recession. The data however vary a great deal from country to country and between the various sectors of production. If for example the growth in GDP is considered, both Germany and France show a growth of +1,2% which raises hopes of recovery; in the Netherlands the growth in GDP is slightly less: +0.9%. In line with the average figure for the EU is Italy (+0.7%) while just below this is the UK (+0.6%). Surprisingly, the Polish GDP is the highest of all: +2.6%. By contrast, the Spanish economy remains “below zero” (-0.6%). Exports, investments, employment. The Commission’s economists note a “progressive expansion of activity”; “although – they immediately add – recently the real data, especially those relating to industrial production and retail sales, have been less encouraging”. Exports could be a locomotive of growth: “An external environment better than forecast could revive exports”. Investments, on the other hand, remain rather sluggish: “In 2010, due to the downsizing of the housing sector in many member states, investments in the real estate sector also risk being meagre”. The document also devotes a chapter to financial services and budgets: “Since the start of 2009 the conditions of the financial markets have improved, but the restructuring of budgets has not been completed and great uncertainty still remains”. The employment problem, linked to social conditions, is also analyzed: “Scarce prospects of investment usually imply a weakening of the labour market, which risks in turn acting as a brake on private consumption”.World indicators “encouraging”. Lastly, the international situation. In the view of the Commission, during the second quarter of 2009 world economic activity “showed itself more robust that had hitherto been predicted, especially in the emerging countries of Asia”. Excluding the EU, real GDP at the global level in 2010 “should grow by circa 4.25%”. For the short term “the world indicators are encouraging”. But “further down the line, due to the progressive disappearance of the stimulus measures adopted by national budgets, “world growth is likely to go through a phase of weakness”. So eyes are pointed at China and India, as well of course at the US economy.

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