30-Nov-2010 7:48 AM

Economic recovery in EU 'underway'; recovery 'uneven' and 'broadening out'

European Commission's Economic and Financial Affairs, in its "European Economic Forecast: Autumn 2010-2012", stated (29-Nov-2010) a "continuation of the economic recovery is currently underway in the EU". However, it noted that while the recovery is becoming increasingly self-sustaining at EU level, progress across Member States remains uneven. The recovery also appears to be broadening out, whereby the pick-up in exports starts to spur investment demand, according to the report. Details include:
  • GDP: GDP is projected to grow by around 1.75% in 2010-11 and by 2% in 2012. The reported noted: "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, amid a softening global environment and the onset of fiscal consolidation, activity is expected to moderate towards the end of this year and in 2011, but to pick up again in 2012 on the back of strengthening private demand." The contribution of net exports to GDP growth is set to diminish over the forecast horizon and the contribution of domestic demand to increase, owing to a gradual firming of investment and private consumption growth. As for private consumption, a slowly improving employment outlook, moderate income growth and subdued inflation underlie the projected pick-up in private consumption. In 2012, an annual GDP growth rate of around 2% is foreseen.
  • Inflation: Relatively subdued consumer-price inflation is in sight in both the EU and euro area over the coming period, due to remaining slack in the economy, along with fairly moderate wage and unit-labour cost growth. Inflation is projected to average 2% in the EU this year and next, easing to around 1.75% in 2012. For the euro area, a rate of 1.75% is expected in 2011 and 2012;
  • Labour markets:While overall conditions are set to remain weak, labour-market conditions have recently started to stabilise in the EU, lagging the overall developments. A modest improvement expected over the forecast horizon, with employment growth of almost 0.5% and around 0.75% in 2011 and 2012, respectively. The unemployment rate is projected to gradually fall, from some 9.5% this year to about 9% by 2012;
  • Public finances: Some improvement is evident regarding public finances, with around half of EU Member States set to post a lower general government deficit this year than in 2009. 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 ppt in 2012 as the recovery gains ground. The debt ratio, however, is set to remain on an upward path over the forecast horizon;
  • Balance of risks: Amid continued high uncertainty, the outlook presented is subject non-negligible risks. The risks to the forecast appear broadly balanced though. 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. On the downside, the financial-market situation remains a concern, with further tensions possible, as highlighted by the reappearance of stress in sovereign-bond markets lately.

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