The European Commission published its winter economic forecast last week. In previous years, the Commission published detailed economic reports twice a year, in May and November, with interim reports in between. In light of the economic crisis, the Commission decided to add a third detailed winter forecast. This forecast presents the Commission’s economic projections for 2013 and the beginning of 2014 and is an update to the autumn economic forecast.
The unemployment rate is expected to decrease to 6.1 per cent in 2014
The autumn forecast anticipated growth rates of 0.4 per cent in the European Union as a whole and of 0.1 per cent in the eurozone. Unfortunately, the winter economic forecast is less optimistic because the Commission has downgraded its 2013 projections. It now estimates a growth rate of 0.1 per cent for the whole of the EU and anticipates that the eurozone area will remain in recession with its economy shrinking by 0.3 per cent.
Despite the continuing recession in the eurozone, Latvia, Europe’s third poorest country, is hoping to become the 18th member of the eurozone and emulate Estonia’s prosperity after it joined in 2011. It is believed there could now be a rush from Eastern European member States to join the euro. This would see the eurozone increase to 20 members within a few years.
Hungary is expected to be the only member State outside the eurozone to experience a slight decline in its economy of 0.1 per cent. Within the eurozone, Greece is the member State that will experience the greatest decline, of 4.4 per cent. France and Germany will both experience economic growth; in France’s case it is a minimal growth of 0.1 per cent.
Malta will also experience a GDP growth of 0.01 per cent.
The forecast expects that Cyprus will be the only remaining country in recession in 2014.
This decline in economic growth in the eurozone is accompanied by the fact that several member States will not meet their GDP deficit reduction targets. France, for instance, is 0.7 per cent over the three per cent GDP deficit target.
While Portugal has agreed a deficit target of 4.5 per cent, it is not on target with a GDP deficit of about 6.7 per cent. In light of this, Portugal has requested an extension.
Should a member State fail to reach the agreed targets, sanctions may be imposed. However, no member State has been penalised to date. This is due to the fact that the main focus is on the structural fiscal efforts made by member States as opposed to a nominal reduction in the deficit.
In addition, the forecast projects that the unemployment rate will continue to rise compared to last year. Unemployment in the eurozone is expected to reach 12.2 per cent.
The unemployment rate in Malta will remain one of the lowest in the eurozone and is expected to decrease to 6.1 per cent in 2014. This is partly due to the resilient labour market and the successful efforts made by the Government in job creation and sustained economic sustainability.
Finally, both the Commission’s economic forecast and the European Central Bank expect inflation to drop to below two per cent this year. This decrease is believed to continue into 2014.
The winter economic forecast anticipates there will be a modest growth rate in 2014 of 1.6 per cent in the EU and 1.4 per cent in the eurozone.
The Commission expects that 2014 will see domestic demands as the main driver for growth as opposed to exports. This will assist in stimulating imports and reducing the trading balances of member States. This will not reduce the importance of exports, which will continue to contribute positively to the economy.
Eurostat is expected to present its next set of economic figures in April. Following this, the Commission will publish updated projections in May. The European Commissioner for Economic and Monetary Affairs and the Euro, Olli Rehn has expressed disappointed at the projections for the year ahead.
He said that the financial market conditions have improved and investor confidence is increasing, however, this has yet to be reflected in real economic conditions. In addition, Malta has experienced an increase in consumer confidence as well as a higher level of disposable income.
David Casa is a Nationalist MEP.