EU predicts economic growth

Commission’s economic report predicts recovery but says there are big differences between member states.

The European Commission today (29 November) raised its growth forecast for the EU despite the debt crisis affecting the eurozone.

Gross domestic product (GDP) in the EU is predicted to increase by 1.8% in 2010, up from a figure of 0.9% given in May. GDP is forecast to increase by 1.7% in 2011 and by 2.0% in 2012. Growth in the eurozone is expected to be 1.7% in 2010, 1.5% in 2011 and 1.8% in 2012.

The Commission’s twice-yearly economic report indicated there were signs that the recovery was accelerating but warned that improvements were still uneven across the member states.

The report suggested that despite its positive forecast, many countries were still struggling to cope with the economic situation.

Olli Rehn, the European commissioner for economic and monetary affairs, 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.”

The budget deficit for the 27 EU member states is forecast to be 6.8% of GDP this year, decreasing to 5.1% next year and to 4.2% in 2012. For the 16 members of the eurozone, it is expected to be 6.3% in 2010, 4.6% in 2011 and 3.9% in 2012.

The forecast put the Irish budget deficit at 32.4% of GDP this year, improving to 9.1% in 2012. The UK’s deficit is at 10%, and is predicted to be 6.4% in 2012. Greece’s deficit is 9.6% in 2010, decreasing to 7.6% in 2012.

Rehn said that recovery remained “uneven” with many member states going through a difficult period of adjustment.

He said: “A determined continuation of fiscal consolidation and front-loaded 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.

“We are restoring confidence all the time. We need determination and action on all fronts. We will do that.”

He said Germany was regarded as providing the momentum for the upturn. Growth in Germany is predicted to be 3.7% in 2010, slowing to 2.2% in 2011 and 2.0% in 2012. The French economy is forecast to grow by 1.6% in 2011 and 1.8% in 2012, following a predicted 1.6% growth rate in 2010.

Estonia leads the way

Fastest growth will be seen in Estonia, which will adopt the euro in January. Its economy is predicted to grow by 4.4% next year and 3.5% in 2012, compared to a forecast 2.4% in 2010.

Slovakia’s economy is expected to expand by 3.0% in 2011 and 3.9% in 2012, following a 4.1% increase in 2010, while Finland will see the next largest growth rate, with a predicted 2.9% in 2010 and 2.3% in 2011, on the back of 2.9% this year.

Outside the eurozone, Sweden is expected to see 3.3% growth in 2011 and 2.3% the following year, compared with 4.8% this year.

Rehn said that the increase in GDP stemmed from the ongoing, export-driven industrial rebound. The Commission’s report indicated that there had been signs of a revival in domestic demand, particularly in Germany.

The report described the “strong momentum in Germany pulling other countries”, which would contribute to gradual GDP growth.

But the commissioner warned that the brighter overall picture masked differences in various member states. Some countries, including Germany and other export-led member states, had registered a “solid rebound in activity”. Others, particularly the peripheral countries, were still lagging behind.

Rehn said that the recovery appeared to be “broadening out” with the pick-up in exports starting to spur investment demand.

Lagging behind

All countries in the EU, apart from Greece and Portugal, are expected to be out of recession by the beginning of next year, according to the forecast.

GDP is expected to contract in Greece, Latvia and Romania, and, to a smaller degree, in Bulgaria and Ireland.

Portugal is expected to fall back into recession, contracting 1% in 2011, before returning to growth of 0.8% in 2012.

Greece’s economy will slowly improve, the report said. It is predicted to contract by 3% in 2011 before growth of 1.1% for the following year.

The unemployment rate is expected to fall to 9.1% in 2012 from 9.6% in 2010 while the report predicts that inflation is projected to average 2% in the EU this year and next, easing to about 1.75% in 2012. The report said the remaining slack in the economy, along with fairly moderate wage and unit-labour cost growth, was expected to keep inflation in check.