In good health

The “fundamentals” that measure the state of health of the real economy are sound; the international context is favourable (the USA is slowing down, but China and India are accelerating rapidly); the financial crisis generated by subprime American mortgages has eroded but not destroyed confidence. All things considered, growth is set to continue, even if at rates slightly lower than those forecast before the summer. These are the essential data that emerge from the “intermediate forecasts”, a document of economic analysis presented in Brussels on 11 September by the European Commissioner JOAQUIN ALMUNIA , who also warned the governments of EU states of the need for financial rigour. NEED FOR BUDGETARY REFORMS AND BALANCED BUDGETS. The economists of the Commission believe that sustained production, market buoyancy, revival of internal consumption, investments and competitive edge “will help us to overcome the current phase of turbulence on the financial markets”. But, added Almunia, “the greatest risks that overshadow future prospects require that governments should continue along the road of budgetary reforms and deficit reduction to increase the capacity of the EU economy to withstand the shocks”. The Commissioner for Monetary and Financial Affairs also announced his intermediate forecasts (midway between the two “official” forecasts, respectively awaited in the spring and autumn), exclusively regarding the “seven largest member states of the European Union”, in other words the economic and productive systems that provide the main engine of EU growth and that alone represent 80% of EU gross domestic product: Germany, United Kingdom, France, Italy, Spain, Poland and Holland. The Executive forecasts “an economic growth of 2.8% in the EU and 2.5% in the euro zone” in 2007: that’s a revision downwards of 0.1 percentage points of the forecasts published four months ago. INTERNAL DEMAND AND JOBS INCREASING. The Spanish Commissioner links the slight deceleration with the crisis of subprime mortgages in the USA. “The growth ought to continue – he explains -, supported by sound fundamentals and by a global context that remains favourable”. As regards inflation, in 2007 “consumer prices are forecast to increase by 2.2%” in the 27 member states of the EU and by 2.0% in the thirteen that have joined the single currency: an increase of 0.1% over the spring forecasts, caused “by the increased prices of raw materials”. The document however confirms continuing growth: “Internal demand should continue to make a greater contribution to the growth of GDP”, and “production will be increasingly driven by private consumption”. This is a significant observation, especially because it is linked with the “persistent signals of improvement on the labour market in Europe, not least in Germany”. Over the last quarter. In fact, the average unemployment rate in Europe has fallen below 7%, the lowest levels since the early 1980s. NATIONAL DATA: THOSE RISING AND THOSE FALLING. Commissioner Almunia also looked further ahead, predicting “a slightly reduced impetus to growth in 2008 than had been forecast”, with the main question marks represented by further problems on the financial markets and by a rise in the costs of raw materials. The figures presented in the intermediate document suggest however very different performances between the individual countries. In the euro area Spain is registering strong growth in GDP, with a forecast stable at 3.7%, followed by Holland (2.5%) and Germany (2,4%). In Italy slower growth is confirmed at 1.9%, while France has been downgraded, with a GDP growth percentage of 1.9%, half a point less than last May: the Commission expresses some pessimism about the reform policy launched by the new President Nicolas Sarkozy. Outside the euro zone, Poland is registering robust growth (6.5% on an annual basis), which also raises hopes at the employment level. The UK is continuing its progress and the EU has raised its GDP forecast for this country to 2,9%. Meanwhile the European Central Bank is closely watching prices: a credit squeeze, decided on by the bank’s President Jean-Claude Trichet, is aimed precisely at keeping inflationary pressures under control. “MADE IN” TO PROTECT BUSINESSES AND CONSUMERS. The policies being pursued in the Union in the economic field in this phase include one in particular, aimed at “introducing the obligatory indication of the country of origin for some important products imported from third countries”, with a view to protecting European consumers and businesses. The main sectors involved are textiles and clothing, shoes, furniture and jewellery. According to its promoters (MEPs Joseph Daul, Enrique Baròn Crespo, Graham Watson and Heide Ruhle), the “made in” provision is not dictated by any protectionist aim; it’s in line with a measure already being implemented in the USA, Japan and Canada.