EU economic forecasts launched amid uncertainty
The European Commission's extended interim forecasts for 2009 -2010, launched in Brussels last week by Joaquín Almunia, Commissioner for Economic and Monetary Affairs, were launched amid exceptional uncertainty about global developments. The European...
The European Commission's extended interim forecasts for 2009 -2010, launched in Brussels last week by Joaquín Almunia, Commissioner for Economic and Monetary Affairs, were launched amid exceptional uncertainty about global developments.
The European Commission forecast that in 2009 GDP growth is expected to shrink by 1.8 per cent in the European Union and by 1.9 per cent in the eurozone - although growth is projected to remain positive in nine member states - before recovering moderately to 0.5 per cent in 2010. This forecast represents a downward revision of about two percentage points compared to the previous Commission forecast of last autumn.
"This is the result of the impact on the real economy of the intensified financial crisis, the ensuing global downturn manifested in the severe contraction of world trade and manufacturing output and, in some countries, housing market corrections. Government consumption and public investment, however, will provide relief. The fact that inflationary pressures have eased also contributes to private consumption. The severity of the economic downturn will have a significant impact on employment and public finances over the forecast horizon," Mr Almunia announced.
The forecasts indicate that EU employment is expected to increase by 3.5 million jobs this year or an unemployment rate of 8.75 per cent in the EU and 9.25 per cent in the eurozone with a further increase in 2010. The worsened outlook is also expected to take its toll on public finances this year with the deficit more than doubling in the EU to 4.25 per cent.
On the positive side, the Commission report said that inflationary pressures are abating rapidly amid faltering commodity prices that drove inflation in the past. Consumer-price inflation is now expected to fall from 3.7 per cent in 2008 in the EU (3.3 per cent in the euro area) to about one per cent in 2009 and just below two per cent in 2010 in both regions.
The Commission also forecast that economic activity worldwide is expected to have fallen markedly in the last quarter of 2008 and that declines in recent survey data and incoming orders indicate that this weakness is likely to persist in the short term.
"The economic downturn is expected to be broad-based with negative spillovers increasingly affecting emerging-market economies. For 2009 as a whole, world GDP growth is projected to slow to 0.5 per cent (from 3.3 per cent in 2008 and the exceptionally strong five per cent average in 2004-2007). Starting in the second half of 2009, global growth is expected to rise gradually but moderately as the financial market situation improves and the impact of the macroeconomic policy easing gains traction. Overall, global GDP growth is expected to be around 2.75 per cent in 2010," it said.
In its report on Malta the Commission said that the pace of economic expansion eased in the first three quarters of 2008, driven by declining net exports. In the fourth quarter GDP growth is set to remain weak as the pace of private and public consumption expenditure is expected to decelerate. It said exports are also anticipated to remain "sluggish" due to a deteriorating performance of tourism and certain sectors of manufacturing. Overall, GDP is estimated to have grown by 2.1 per cent last year (compared to the government's prediction of a three per cent growth in 2008).
The Commission said that real GDP growth is expected to weaken to 0.7 per cent this year (compared to the government's forecast of 2.5 per cent) and to recover mildly in 2010 in line with economic developments in Malta's main trading partners.
"Domestic demand is projected to decelerate mostly in response to lower private consumption. This, in turn, reflects a deteriorating labour market due to a sluggish export sector. Tourism is anticipated to weaken in 2009 in the wake of faltering demand, especially from the British market. Export of goods, dominated by semi-conductors, should contract. Investment is expected to benefit from higher public capital spending. Private investment will be influenced by construction of a major foreign ICT project. Otherwise, investment decisions are set to suffer from the weak global economic scenario and the cooling domestic housing market."
The Commission predicted the government deficit in Malta will be 2.6 per cent of GDP in 2009 and 2.5 per cent in 2010. This is in contrast with the government's forecast of 1.6 per cent for this year.
The Commission usually publishes economic forecasts four times a year: comprehensive exercises in spring and autumn for all EU countries and lighter interim forecasts published in February and September for the largest economies and a few variables only. The current interim forecast took an extended format covering all member states, more variables than usual and the full two-year forecast horizon. "This is because of the exceptionally rapid deterioration in the economic situation and outlook since the autumn and the importance of reflecting this in the annual exercise of assessing member states' stability and convergence programmes," the Commission said.
The European Commission forecast that in 2009 GDP growth is expected to shrink by 1.8 per cent in the European Union and by 1.9 per cent in the eurozone - although growth is projected to remain positive in nine member states - before recovering moderately to 0.5 per cent in 2010. This forecast represents a downward revision of about two percentage points compared to the previous Commission forecast of last autumn.
"This is the result of the impact on the real economy of the intensified financial crisis, the ensuing global downturn manifested in the severe contraction of world trade and manufacturing output and, in some countries, housing market corrections. Government consumption and public investment, however, will provide relief. The fact that inflationary pressures have eased also contributes to private consumption. The severity of the economic downturn will have a significant impact on employment and public finances over the forecast horizon," Mr Almunia announced.
The forecasts indicate that EU employment is expected to increase by 3.5 million jobs this year or an unemployment rate of 8.75 per cent in the EU and 9.25 per cent in the eurozone with a further increase in 2010. The worsened outlook is also expected to take its toll on public finances this year with the deficit more than doubling in the EU to 4.25 per cent.
On the positive side, the Commission report said that inflationary pressures are abating rapidly amid faltering commodity prices that drove inflation in the past. Consumer-price inflation is now expected to fall from 3.7 per cent in 2008 in the EU (3.3 per cent in the euro area) to about one per cent in 2009 and just below two per cent in 2010 in both regions.
The Commission also forecast that economic activity worldwide is expected to have fallen markedly in the last quarter of 2008 and that declines in recent survey data and incoming orders indicate that this weakness is likely to persist in the short term.
"The economic downturn is expected to be broad-based with negative spillovers increasingly affecting emerging-market economies. For 2009 as a whole, world GDP growth is projected to slow to 0.5 per cent (from 3.3 per cent in 2008 and the exceptionally strong five per cent average in 2004-2007). Starting in the second half of 2009, global growth is expected to rise gradually but moderately as the financial market situation improves and the impact of the macroeconomic policy easing gains traction. Overall, global GDP growth is expected to be around 2.75 per cent in 2010," it said.
In its report on Malta the Commission said that the pace of economic expansion eased in the first three quarters of 2008, driven by declining net exports. In the fourth quarter GDP growth is set to remain weak as the pace of private and public consumption expenditure is expected to decelerate. It said exports are also anticipated to remain "sluggish" due to a deteriorating performance of tourism and certain sectors of manufacturing. Overall, GDP is estimated to have grown by 2.1 per cent last year (compared to the government's prediction of a three per cent growth in 2008).
The Commission said that real GDP growth is expected to weaken to 0.7 per cent this year (compared to the government's forecast of 2.5 per cent) and to recover mildly in 2010 in line with economic developments in Malta's main trading partners.
"Domestic demand is projected to decelerate mostly in response to lower private consumption. This, in turn, reflects a deteriorating labour market due to a sluggish export sector. Tourism is anticipated to weaken in 2009 in the wake of faltering demand, especially from the British market. Export of goods, dominated by semi-conductors, should contract. Investment is expected to benefit from higher public capital spending. Private investment will be influenced by construction of a major foreign ICT project. Otherwise, investment decisions are set to suffer from the weak global economic scenario and the cooling domestic housing market."
The Commission predicted the government deficit in Malta will be 2.6 per cent of GDP in 2009 and 2.5 per cent in 2010. This is in contrast with the government's forecast of 1.6 per cent for this year.
The Commission usually publishes economic forecasts four times a year: comprehensive exercises in spring and autumn for all EU countries and lighter interim forecasts published in February and September for the largest economies and a few variables only. The current interim forecast took an extended format covering all member states, more variables than usual and the full two-year forecast horizon. "This is because of the exceptionally rapid deterioration in the economic situation and outlook since the autumn and the importance of reflecting this in the annual exercise of assessing member states' stability and convergence programmes," the Commission said.