Bad news emerged from Brussels yesterday as the latest interim economic forecasts signalled dark clouds ahead.
The twice-yearly analysis of the economies of the seven largest EU member states (Germany, France, Spain, Italy, the Netherlands, Poland and the UK) says growth in both the eurozone and the EU 27 will almost come to a standstill by the end of the year. “GDP growth is now expected to remain subdued in the second half of the year, coming close to standstill at year-end,” the report predicts.
After relatively healthy growth in the first half of this year – 0.8 per cent in Q1 and 0.2 in Q2 – Brussels is now forecasting GDP growth in the 17-member euro area to be just 0.2 per cent in the third quarter and 0.1 per cent in the fourth.
Compared to last spring, when the EU Executive issued its last forecasts, annual GDP growth projections for the eurozone have now been revised downwards by 0.5 per cent, which, in the circumstances, is considered substantial. According to the forecasts, annual growth in the euro area is expected to reach 1.6 per cent, below the 1.8 per cent registered in 2010.
Although Malta is not specifically mentioned in the report due to its negligible impact vis-a-vis the euro area, the new Commission forecasts still do not augur well. “At the end of the day, all the economies in the eurozone are interrelated and all will suffer from an eventual slowdown,” an EU official said.
“Although Malta is one of the member states that has seen a steady growth in the past months, it will still be affected because its major trading partners are all predicted to go through another bad patch,” he said.
Germany, the UK and Italy, Malta’s biggest economic partners, both in terms of exports and tourism, are all expected to have slow growth, even though Germany is likely to perform better than predicted.
According to the latest Eurostat data, Malta had the fastest growing economy in the eurozone in the second quarter of this year, registering a quarter-on-quarter increase of 2.8 per cent.
Central Bank of Malta forecasts put Malta’s GDP growth this year at 2.5 per cent, much higher than the 1.6 per cent predicted for the eurozone.
Announcing the interim forecasts results during a press conference in Brussels, European Economic and Monetary Affairs Commissioner, Olli Rehn, gave a subdued picture of the economic situation.
“The outlook for the European economy has deteriorated. Recoveries from financial crises are often slow and bumpy. Moreover, the EU economy is affected by a more difficult external environment while domestic demand remains subdued. The sovereign debt crisis has worsened and the financial market turmoil is set to dampen the real economy,” he said.
“To get the recovery back on track, it is crucial to safeguard financial stability and put budgets on a path that is sustainable beyond doubt. This requires steadfast continuation of the strategy of differentiated, growth-friendly fiscal consolidation and the implementation of the decisions to support financial stability. At the same time, structural reforms remain more important than ever to build tomorrow’s growth potential,” Mr Rehn added.
To make matters worse, inflation is expected to keep its head up although it should soon start going down due to the economic slowdown. Accelerating in the first half of the year, particularly due to higher oil and energy prices, the Commission is forecasting an inflation of 2.5 per cent by the end of the year in the euro area, above the two per cent the European Central Bank aimed for.
The next forecasts, which will give a clearer picture of the latest developments for 2011, will be issued by the Commission in November and will include projections for all the 27 members of the EU.