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Tuesday 19.12.2017 | Name days: Sarmis, Lelde

EC: Europe's economy keeps recovering amid new risks

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It is expected EU’s gradual recovery will only gather strength and future outlook for 2011 now seems to be better than predicted in autumn, European Commission representative in Latvia Kaspars Kreics told the business news portal BNN.

It is forecast GDP will grow about 1.75% this year and nearly 2% in 2012 amid more bright global economy prospects and growing optimism in the European business environment.

This year’s inflation is forecast to increase 3% in EU and 2.5% in eurozone, dropping down to 2% and 1.75% in 2012, respectively. It is expected market conditions will improve gradually. Unemployment is forecast to shrink about 0.5 percentage points and exceed 9% in EU and 9.75% in eurozone. There will be growing fiscal consolidation, moreover, structural reforms must be carried out most strictly, as they help create new jobs and boost national economies competitiveness, he says.

EU economic recovery will continue, despite the ongoing problems in the financial markets and complex external conditions. The recovery is gathering pace and it is forecast it will be ongoing all through 2011, as forecast in the autumn of 2010. Similarly, it is also predicted investments in production facilities will grow, while dropping in construction.

It is expected private consumption in EU will climb this year and the labour market conditions will add to the strength of it, as they are gradually improving. However, higher inflation has to a certain extent slowed down the pace of it, as opposed to the forecasts expressed in autumn. Moreover, it is also forecast in a short-term capital and consumption will still be affected by shrinking liabilities of cooperative and household sector.

As usually, during recovery periods from deep recessions, it is expected EU recovery will be less remarkable than in the previous two economic upturns despite gaining strengthen along with stabilizing domestic demand.

This year’s GDP is predicted to expand more than 1.5% in eurozone and 1.75% in EU up to about 2% in both eurozone and EU in 2012. Moreover, 2011 is showing better performance that forecast in the autumn of 2010.

Measures in the member states

The overall picture does not show well enough the significant differences in the member states’ recovery. To large extent the activity has resumed in some countries, particularly in Germany, as well as in smaller, export-oriented states, while others, especially some of the EU periphery countries are lagging behind. It is expected that further on the recovery pace will differ throughout the EU.

It is awaited in the forecast period the correction of the EU internal imbalances will continue. The impact of the alignment is most felt by countries with large budget deficit at the start of the crisis, mainly caused by the consumption drop. However, a number of structurally large current account surpluses, seem to gradually decrease, in light of higher domestic demand and dynamic import.

Also, the situation varies on the European labour market. The unemployment rate ranges from 4-5% in the Netherlands and Austria to 17-21% in Spain and the Baltic States. Employment in the EU has slightly increased in the last quarter of 2010 due to the improvement in all sectors, except manufacturing and construction. Considering the usual delay between the production output and employment growth, it is projected that the EU and the eurozone’s employment will rise moderately this year. It is expected that the unemployment in the eurozone and the EU will decline by about ½ percentage points. However, despite the situation has somewhat improved since last autumn, it is still expected that the economic recovery will go hand in hand with relatively high unemployment rates.

Last year, the public sector finances started to improve. In view of a more rapid growth and the temporary halt of improvement measures, it is predicted that the EU general government budget deficit will reduce from around 6 ½% of GDP in 2010 to around 4 ¾% of GDP in 2011, further dropping to 3 ¾% of GDP in 2012 along with similar trends, but a slightly lower deficit in the eurozone. These figures are slightly better than forecast in autumn. Both the EU and the eurozone’s budget deficit reduction is mainly achieved by spending cuts. Contrary to the budget deficit, the debt ratio will keep rising in the forecast period, amounting to approximately 83% of the EU GDP and 88% of the eurozone’s GDP by 2012.

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