Thaw and turbulence

Economic forecasts until 2012

At a moment when the European Union intervenes to rescue Ireland’s public account (the 85 billion euro bailout plan was finalized in the week-end by Ecofin and the Euro-group with the support of the International Monetary Fund, backed by the Unite Kingdom, Sweden, and Denmark), the Commission released its autumn forecast, marked by a multiyear approach, extending to 2011 and 2012. Conditional mood. Employment growth is “expected” in 2011 and 2012, while private consumption is set to increase starting in 2012. National deficit is projected to fall, however the debt ratio is expected to follow an upward trend. The conditional mood is due: on November 29 the European Commission issued the “Autumn forecast’, i.e. the analysis of the economic situation and mid-term prospects. The executive “foresees a continuation of the economic recovery currently underway in the EU”. GDP is projected to grow “by around 1¾% in 2010-11 and by around 2% in 2012”. A “better than expected performance so far this year” underpins the “significant upward revision to annual growth in 2010 compared to the spring forecast”. However, underlines the EU Commission, “amid a softening global environment and the onset of fiscal consolidation, activity is expected to moderate towards the end of the year and in 2011, but to pick up again in 2012”, on the back of strengthening private demand. 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” in the next two years. Ongoing recovery. “The economic recovery has taken hold. I am encouraged by the prospect that employment is finally set to improve next year in Europe”. The remarks by European Commissioner for Economic and Monetary Affairs, Olli Rehn, were marked by optimism, although the ‘Autumn Forecast” released by the Executive also envisages unpredictable economic developments. “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”, added the Commissioner. The situation in Greece, Ireland and perhaps other euro zone countries such as Portugal are an example. Rehn pointed out: “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”. The Commission’s forecast highlights export growth – the first stage of the traditional recovery pattern – in EU27. Uneven recovery. National figures show that progress across Member States remains uneven. Comparing data referring to several years provides an accurate picture. In the European Union GDP fell by – 4.2% in 2009, the worst downturn phase of global recession, which affected all corners of the old continent. In 2010, GDP in EU27 is expected to register + 1.8 and maintain -provided unvaried markets and policies – positive levels in the next two years (amounting respectively to 1.7 and 2.0%). At domestic level, Germany registered -4,7% in 2009, +3,7 in 2010, and is set to stabilize at 2.2 e 2.0 respectively in 2011 and in 2012. France registered -2,6% in 2009, this year it is at 1.6%, and is expected to increase from 1.6 to 1.8 in the next two years. Data for Greece from last year to 2012 are -2,3, -4,2, -3,0 and finally +1.1. For Ireland: -7.6 -0.2 +0.9 +1.9. Outside the euroarea the economy of Poland registered positive figures: +1.7% in 2009, 3.5 this year, 3.9 (2011) and 4.2 (2012). Finally the United Kingdom: -5.0, +1.8, 2,2 and 2.5. The gradual and cautious return to productive investment would boost recovery, athough government intervention for enterprises and competition due to “suffering” public accounts are expected to be contained.. As for private consumption, “a slowly improving employment outlook, moderate income growth and subdued inflation” (approximately 2%) underlie the projected pick-up.

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