EU OBSERVER 4.5.09
New EU forecast twice as gloomy
ANDREW WILLIS
BRUSSELS - A new economic forecast released by the European
Commission on Monday (4 May) predicts EU growth will contract by 4
percent this year, a considerable downward revision from its January
forecast of minus 2 percent growth.
Average unemployment is set to rise to 9.4 percent this year, while
government deficits inside the 27-member union will average 6 percent
of GDP, twice the figure allowed for euro area countries and used as
a marker for the rest of the union.
Despite this, economy commissioner Joaquin Almunia sought to cast a
more optimistic light over the new data.
"The outlook is still gloomy but for the first time since mid-2007
some positive signals have appeared over the last few weeks," he
said. "We are no longer in freefall."
Improved business expectations within the EU and positive export data
from Asia point to a stabilisation of Europe's economy in the second
half of this year and a return to growth in 2010, he says.
But while other policy-makers have mirrored the EU economy chief's
mild optimism in recent weeks, the extremity of the current situation
is hard to avoid.
In 2008 the economies of seven EU states suffered an annual drop in
GDP, yet this year the commission estimates that only Cyprus is set
to enjoy positive growth.
Unemployment and budget deficits continue to rise
Faced with falling public demand, companies across the EU are
currently cutting jobs and production levels as they struggle to stay
alive.
As a result, only Luxembourg will see more people enter the workforce
than leave this year according to the new data, with EU unemployment
set to rise from 7 percent in 2008 to 9.4 percent in 2009.
Only 3.9 percent of the workforce is predicted to be out of a job in
the Netherlands this year, while in Spain unemployment is set to
average 17.3 percent.
Despite Mr Almunia's comments on a return to growth next year,
unemployment will continue to rise in 2010 as the need for new
workers takes time to materialise.
In the meantime, falling tax receipts and the rising cost of social
benefits and government stimulus packages are pushing member state
budgets further into the red.
In March the commission initiated the first stage of excessive
deficit procedures against France, Greece, Spain and Ireland due to
2008 budgets deficits exceeding 3 percent.
Hungary and the United Kingdom have already received commission
guidelines under the procedure that can only result in fines for the
16 eurozone members.
Based on the commission's new data, Malta, Poland, Lithuania, Latvia
and Romania will now also receive recommendations from the commission
on how to tackle their budget deficits.
"We continue to enforce the Growth and Stability Pact, no doubt about
it," said Mr Almunia.
Speed of recovery
The ability of member states to deal with the crisis and the speed
with which they will emerge from the recession will not be uniform
across the EU.
"Everybody has been affected but not everybody has the same starting
position to fight against the recession," said Mr Almunia.
"Those who consolidated their public finances during the good times
and those who have a better position from the point of view of their
competitiveness are in a stronger position to define a successful
exit strategy."
Both Spain and Ireland are likely to emerge more slowly from the
recession than other EU states as their economies are currently going
through a painful housing market correction.
While EU growth for 2010 is predicted to be minus 0.1 percent of GDP,
growth figures for Ireland and Spain will be minus 2.6 and 1 percent
respectively.
Other laggards include Latvia and Lithuania whose growth forecasts
for 2010 are predicted at minus 3.2 and 4.7 respectively.
Posts
