Halfway there

Gross domestic product still falling, unemployment rising throughout Europe, inflation stable, new imbalances in public accounts: that’s the general picture that emerges from the Spring Economic Forecasts, published in Brussels by EU Commissioner for Monetary Affairs Joaquin Almunia on 4 May. Almunia said: “We are no longer in freefall, but it cannot yet be said we have got over the crisis, because we are in the middle of a grave and deep recession”.The worst data for Ireland and Germany. In fact the tables presented by the Commission register a minus 4% in GDP in 2009 (a worse scenario than that presented by the forecasts of recent months) both for the euro zone and for the EU27. The most worrying data concern Ireland (-9.0%), Germany (-5.4), Finland (-4.7), and Italy (-4.4). Negative figures are also forecast for all the other countries of the single currency, with the sole exception of Cyprus (+0.3%). Estimates of negative growth are also made for countries that aren’t in the euro zone, with extreme cases in Estonia, Latvia and Lithuania (minus over 10%), while the drop in GDP for the UK is estimated at -3.8%. The Forecasts were analysed at the Ecofin meeting of 5 May; discussed during the plenary session of the EP in Strasbourg; and will be examined anew both at the summit on employment (in Prague on 7 May), and at the European Council in June.Recovery deferred, repercussions on employment. “The main factors of the recession – explained Almunia – are the deterioration of the global financial crisis, a sharp contraction in world trade and the adjustment of the real-estate market that is taking place in some economies”. Yet there are some glimmers of light: “Thanks to the effects that the fiscal stimulus and monetary measures are beginning to produce, growth should at least in part resume a positive trend during 2010” (forecast GDP for the EU27 as a whole: -0.1%). However, the Executive admits that the repercussions of the recession on the labour market are grave, with an unemployment rate for the EU as a whole that is forecast to rise to 11% in 2010. “The public deficit is also forecast to rise sharply: it is expected to reach 7.25% of GDP”, reflecting both the economic downturn and the discretionary measures adopted to support the economy, in line with the European recovery plan proposed by the Commission”.Recession, state interventions and new rules . “The European economy is going through the deepest and most extensive recession since the end of the war – insisted the Spanish Commissioner -. But the ambitious measures adopted by governments and central banks in these exceptional circumstances ought to halt the downturn in economic activities this year and permit a recovery next year”. To achieve this objective it is however essential “to proceed rapidly with the removal of ‘toxic assets’ from bank balance sheets and recapitalise the banks where necessary”. The Commission’s recipe has been, ever since the onset of the crisis, wide-ranging (though considered too weak by various authorities): support for the banks, injections of public funds into the production system, and aid to firms that invest, also in the form of tax relief. Some member states have consequently acted with ambitious intervention plans, others have been too cautious. Simultaneously, political action has continued, aimed on the one hand at agreeing on stabilization measures in liaison with other countries in the world (G20) and on the other at defining rules for capital markets, especially with the aim of avoiding new financial earthquakes in future.Less work, less income for families. The Spring Forecasts also emphasize that the recession has generated for the first time since the end of the war a “global crisis”, with negative world GDP. Nonetheless, the measures adopted in the five continents are, in Almunia’s view, producing the hoped-for effects and GDP growth at the planetary level “ought to return to positive territory in the second half of 2009”. In 2010, world growth ought to reach 2%, again according to the figures presented by Almunia. As for the situation in the EU, the Commission warns that all member states have been struck by the recession, even if their prospects for recovery vary depending on their financial exposure, dynamics of the property market, and opening of manufacturing sectors to foreign markets. Moreover, the recession is affecting not only all States, “but also almost all components of demand”: sharp contraction is registered for private investments, while demand for consumer goods “is resisting relatively well, thanks to the drop of oil prices and lower inflation”. But here a warning is made to families: disposable real income “will probably fall following the progressive deterioration of the labour market”.