Less growth and more risks

It’s a matter of faith and appetite. The appetite of investors decreases, discouraged by the instability of financial markets; the faith of consumers increases together with employment. If we read between the lines of The Financial Forecasts for the Fall, the document presented last week by the Commission, we will discover that beyond the numbers, the near future of the EU’s economy is closely bound to uncertain factors.UNCERTAINTY PREVAILS. “Dense clouds gathered on the horizon in the summer, when the market was hit by turbulence” linked to high-risk loans, with the slow-down of the US economy and the oil price on the increase”. Subsequently, economic growth is relenting and risks of another constraint “have increased”. JOAQUÍN ALMUNIA , Commissioner for financial and monetary affairs, was straightforward in his remarks of November 9, supported by a large amount of data. He then added, wishing positive development, that “thanks to strong global growth and to solid economic foundations, negative effects are expected to be limited”. GDP DECREASES WHILE COMSUPTION SURGES. According to Brussels’ experts’ forecasts, “economic growth of EU-27 is expected to slow-down from 2.9% in 2007 to 2.4% in 2008 and 2009”. Greater constraints on business financing conditions along with an atmosphere of uncertainty connected to American “subprime” became concrete already since the month of September. Altogether, the production and trade apparatus of the EU does work. However, globalized markets incorporate problems which are reproduced across the ocean. On the contrary, recent creation of millions of new job opportunities in Europe (3,5 millions in 2006, 3.6% this year, probably 8 million in 2007-2009) increases family income and encourages consumption by the private sector “which has become the major engine of development”. Provided that “consumer confidence remains good”, pointed out the executive board.RISK FACTORS. Among other indicators, rising inflation is in the forefront. The Commission envisages it will surge “by 2.4% in the euro-zone in forthcoming trimesters due to higher prices of basic products, a 2% decrease is expected by next summer”. The record marked by oil price surge seriously undermines energy supply. Another potential inflation factor is marked by income levels. “Labour shortage is increasing – the Commission pointed out – and therefore salaries are expected to increase more rapidly”, in particular in the year 2008. However, sustained employment productivity growth is expected to limit the increase in unitary labour expenses, thus limiting also inflation. As relates to public accounts turnround, Commission financial experts displayed little enthusiasm. As a matter of fact, economic slowdown might lead to an increase in the deficit. Moreover, public debt is still “on a downhill path and it should decrease to 63.4% of the GDP in the euro-zone by 2009 and decrease below 60% in the EU already in 2007.” THE DATA, COUNTRY BY COUNTRY. These were the general remarks. The situation of each single State however is different. As relates to GDP in the euro-zone, Ireland, Greece, Slovenia, Finland and Luxembourg reach 4% while Germany is at 2.5%. At the bottom of the list we find France, Italy (both at 1.9%), and Portugal (8.1%). In the next years Italy is expected to register the lowest progress. Economic asset of new Member States is still quite modest while the Gdp proceeds at fast pace with over 6% peaks in Bulgaria, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia. THE JOB MARKET. The employment situation is rather articulate. The Netherlands and Denmark are close to 3%; the United Kingdom and Italy between 5 and 6%; Germany and France above 8%; Poland (9.4%) and Slovakia (11.2%) rank last. The trend towards improvement is general and more accentuated in East-European Countries. A last remark concerns adhesion-candidate States: Croatia, Macedonia, and Turkey. In these cases, economies are very dynamic, with growth rates above 5% both in the year 2007 and in the next two years. The situation of the job markets is unfortunately negative: in Macedonia unemployment rate is and will remain 30%; in Croatia it amounts to 10% while Turkey registers approximately 9%.