From austerity to growth

Last week the European Commission presented its spring economic forecast updating the previous forecast it released in February. The latest forecast predicts that four of Europe’s five largest economies in the eurozone, France, Spain, Italy and the Netherlands, will remain in recession in 2013. In France GDP shrank by one per cent.

A reduction in the European Union’s fiscal deficit will continue

It is also predicted that unemployment in France will increase from 10.6 per cent to 10.9 per cent by 2014. There has been a loss of competitiveness in France; therefore its labour markets need to be reformed. However, Germany, Europe’s largest economy, experienced some growth.

The forecast shows a return to growth for these large European economies in 2014. European Commissioner for Economic and Monetary Affairs Olli Rehn attributes this to a subtle shift away from austerity to economic growth.

This is partly due to the market trust which has been restored by the radical deficit cuts and the actions taken by the European Central Bank. In member states such as France, the Netherlands and Slovenia, fiscal consolidation is slowing down. As a consequence it is possible that these member states will receive extensions to their deadlines to reach their target deficits. France could possibly receive another two years to reach its target, while the Netherlands and Slovenia could possibly receive an additional year each. It is also highly likely that Spain will receive an extension. The extension granted will be based upon the reform packages introduced by member states.

Unemployment across Europe is set to remain at approximately 12 per cent. Economic recovery has been too slow for this figure to be reduced. However, this figure differs greatly from member state to member state. For example, member states such as Greece and Spain are experiencing unemployment rates of approximately 27 per cent while other member states such as Germany and Austria are experiencing rates of approximately five per cent. The unemployment rate in Malta remains relatively unchanged at 6.3 per cent for 2013. According to the European Commission forecast, this number will be further reduced in 2014 to 6.1 per cent.

This decrease should be the result of the employment growth in areas such as the services sector. Despite this some areas of high growth continue to experience labour shortages. There is a divide in unemployment rates between member states of northern Europe and southern Europe. This gap looks likely to widen in the future.

Overall in 2013 the eurozone economy is expected to shrink by 0.4 per cent. The predicted growth rate for 2014 is set at 1.2 per cent, down from the February prediction of 1.4 per cent. The European Commission’s spring forecast appears to be in line with the forecast presented by the European Central Bank in March. The EBC predicts a growth in 2014 of a maximum of two per cent. The aggregated eurozone deficit is expected to fall in 2013 to 2.9 per cent of the GDP and 2.8 per cent in 2014.

Malta’s economic growth slowed down last year to 0.8 per cent from 1.7 per cent in 2011. Net exporters were the main reason behind this as they benefited from the tourism and financial services. However, it is expected this figure will increase over 2013 to 1.4 per cent and 1.8 per cent in 2014. Household consumption is expected to be the driver behind this growth, partly due to the improving consumer confidence in recent months.

Member states such as Italy and Portugal will be the most affected by the economic slowdown. It is expected Italy will only reduce its budget deficit to 2.9 per cent of its GDP this year from three per cent last year. The February forecast had previously predicted a decrease to 2.1 per cent. Portugal is also not likely to reach its target of 4.9 per cent. A reduction in the European Union’s fiscal deficit will continue.

It is expected to be 3.4 per cent of the GDP of the European Union as a whole and 2.9 per cent of the GDP of the eurozone. The only significant change between the European Commission’s February forecast and this spring forecast is the contracting of Greece’s economy by 4.2 per centcompared to 4.4 per cent in February.

David Casa is a Nationalist MEP.