The European Union has revised upwards its GDP forecasts for 2011 but is also expecting increased inflation as a result of higher energy and commodity prices on the international markets.
Publishing its interim economic forecasts, which deals with the economies of the six largest European economies, the European Commission said that it is expecting 2011 to continue on the recovery path, forecasting an average GDP growth in the eurozone of 1.6 per cent, up 0.1 per cent over last autumn’s forecasts. Malta is expected to perform better than the eurozone average.
On the other hand, the EU is expecting more hikes in prices and revised upwards its inflation forecasts to 2.2 per cent in the eurozone for 2011.
European Economic and Monetary Affairs Commissioner Olli Rehn said that after a slowdown of growth in the second half of last year, the EU’s economic recovery is now expected to gain further ground.
“While exports should continue supporting the recovery, a rebalancing of growth towards domestic demand is expected for 2011, resulting in more sustainable growth,” he said.
However, according to the forecasts, the recovery remains uneven and many member states are going through a difficult phase of adjustment. Moreover, despite the recent relative calm in the financial markets, the situation has not yet fully normalised.
“Ensuring a stronger recovery calls for an agreement on an ambitious agenda of fiscal consolidation and structural reforms, as outlined in Commission’s Annual Growth Survey,” Mr Rehn said.
The Commission believes Germany will lead the recovery, with GDP growth projected at 2.4 per cent, followed by France (1.7 per cent) while Spain’s recovery remains muted (0.8 per cent).
Outside the euro area, growth in Poland and the UK is respectively projected at 4.1 and two per cent.
The report notes that while exports should continue supporting the recovery a rebalancing of growth towards domestic demand is expected for 2011. Prospects for private investment, and more specifically for investment in equipment, are favourable while private consumption, which remained subdued in 2010, is expected to gradually firm up this year.
However, the growing concern over inflation remains.
The Commission’s report states that “a surge in energy and commodity prices in the last few months has led to an uptick in headline HICP inflation”.
The inflation forecasts for 2011 are revised up, with HICP inflation now projected at 2.5 per cent in the EU and 2.2 per cent in the euro area.
“Nevertheless, the remaining economic slack, subdued wage growth and overall well-anchored inflation expectations should contribute to keep underlying inflationary pressures in check, with inflation expected to end the year at close to two per cent in both regions,” the Commission’s forecasts note.