News Release
No. 151/04
October 26, 2004
EU COMMISSION’S AUTUMN ECONOMIC FORECASTS SHOW RECOVERY
BEATING EXPECTATIONS
According to EU Commission’s economic
forecasts released today in Brussels, economic activity in the euro area*
and the EU gathered speed in 2004,
supported by continued buoyancy of global growth and trade. Growth rates are now
projected to reach 2.1% in the euro area and 2.5% in the EU, up from 1.7% (euro
area) and 2% (EU-wide) predicted in April. For 2005, a slight deceleration to
2.0% for the euro area and 2.3% for the EU is possible as the sharp rise in oil
prices takes its toll. A subsequent rebound is expected in 2006 to 2.2% and 2.4%
respectively. The main factors behind the economic recovery, besides the external
impulse from global demand, include accommodative economic policies, low inflation,
supportive financial conditions, widening profit margins and progress in structural
reforms.
The consolidation of the recovery over the forecast horizon (2004-2006) is underpinned
by an acceleration of investment expenditure and a more gradual pick-up in private
consumption. As the lagged effects of the protracted downturn dissipate, the labour
market is expected to respond to the momentum of economic activity. About 600,000
jobs are expected to be created this year in the euro area and 800,000 in the
EU. The unemployment rate is expected to remain stable at 8.9% in the euro area
and 9.1% in the EU before edging downwards in 2006.
Headline inflation in the euro area remained sticky in 2004, buoyed up by such
factors as energy price hikes and rises in indirect taxes. Compared to a projected
2.1% in 2004, headline inflation is expected to fall to 1.9% in 2005, as a result
of weak domestic pressures, and to 1.7% in 2006. For the EU as a whole, inflation
is expected to be more persistent.
Based on current policies, the general government deficit in the euro area is
set to improve in the forecast period, from 2.9% of GDP in 2004 to 2.5% of GDP
in 2005 and, under unchanged policies, to remain unchanged in 2006. Deficits around
or in excess of 3% of the GDP threshold are expected in Germany, Greece, France,
Italy and Portugal, unless additional consolidation measures are adopted. Debt
ratios in these countries are in excess of the 60% of GDP threshold and would
either rise or fail to decrease significantly.
Outside the euro area, the United Kingdom is set to reduce the deficit gradually
from the expenditure-induced peak in 2003 on the back of buoyant growth. In most
of the recently-added
Member States with high deficits, fiscal consolidation is expected to make
headway during the forecast period, helped in some cases by a faster-than-expected
resumption of growth at or above trend rates.
The forecast is subject to risks. On the downside, potential dampening effects
from the external environment include the prolongation of high and volatile oil
prices and the unwinding of long-standing macroeconomic
imbalances in the United States. Among the internal vulnerabilities are the continued
reliance on the external demand as the main source of growth in some countries
with the slow revival in consumer and investor confidence. The upside risks include
the still robust world trade, pent-up consumer demand in the EU and completion
of labour market reforms. A reversal of energy prices cannot be excluded either.
*
Note: the "euro area" refers to the area comprising those
EU member states that have adopted the euro. In 2003 the euro area comprised
Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands,
Austria, Portugal and Finland.
For more information, please go to:
http://europa.eu.int/comm/economy_finance/publications/european_economy/
forecasts_en.htm (Autumn 2004 Forecasts)
http://europa.eu.int/comm/economy_finance/publications/european_economy/
2004/ip041297en.pdf (graphics of main economic indicators)
