Econintersect: The European Union Commission has issued it’s winter economic forecast. The recession is likely to see the 17-country Eurozone GDP shrink another 0.3% in the first half of 2013. This contrasts to the forecast of 0.1% gain for the same time period just three months ago. The sharply lower forecast comes after the Eurozone saw a steep fourth quarter decline in GDP (-0.6%). The new forecast would put the Eurozone in a 0.9% GDP hole compared to third quarter of 2012 and more than 1% lower compared to third quarter 2011. The fourth quarter of 2013 was forecast to see a rebound with GDP growth of 0.7%. This would be a dramatic move as shown in a graph below.
The recovery is expected to continue in 2014 with a GDP expansion for the year of 1.4%.
The full 27-country EU, which includes countries such as Great Britain, Poland, Sweden and Norway who retain their own currencies, is still expected to have positive GDP grwoth for 2013, but just barely (+0.1%). The EU27 saw a decline of 0.5% on GDP for the fourth quarter 2012.
For 2014 the GDP growth forecast for the EU27 is +1.6%.
EU officials are attributing the expected recovery to austerity, as indicated by this from USA Today:
“The decisive policy action undertaken recently is paving the way for a return to recovery,” said Olli Rehn, the Commission’s top economic official.
Two interesting graphics from the report are reproduced below. The first (Graph 1.5) shows that bank lending is down to levels similar to the Great Financial Crisis (GFC).
Graph 1.8 shows that the EU17 has probably been in recession for at least five quarters and the EU27 has only had one quarter with positive GDP growth over the same interval. The forecast is anticipating a sharp “V” recovery following a meandering negative performance. Is this what you might call “hopium?”
Here is the full summary statement issued by the European Commission:
Return to growth more gradual than expected, says Commission’s latest forecast – despite substantial improvement in EU financial market conditions since summer 2012.
After a disappointing second half of 2012, slow economic growth of just 0.1% is forecast for the EU as a whole in 2013. The eurozone economy is expected to contract by 0.3%.
The improved financial market situation has not yet worked through into better growth, and prospects for 2013 remain muted. But, as the pre-crisis imbalances continue to be reduced, growth should start to pick up, with the 2014 forecast figures 1.6% in the EU and 1.4% in the eurozone.
The weak economy this year is expected to see unemployment rates rise to 11.1% in the EU and 12.2% in the eurozone.
Inflation in the EU should decrease gradually in the course of 2013 and stabilise at around 1.7% in the EU and 1.5% in the eurozone next year.
As many EU countries are implementing fiscal consolidation measures, budget deficits are projected to shrink to 3.4% in the EU and 2.8% in the eurozone in 2013.
New winter economic forecast
These projections appear in the Commission’s first ever ‘winter economic forecast ‘ for the eurozone and the EU as a whole (published on 22 February). The new forecast is part of the EU’s efforts to monitor national economies and public finances more closely, prompted by the economic and financial crisis. The forecast covers GDP growth, inflation, employment and public finances for 2012-14.
- European Economic Forecast Winter 2013 (European Commission, 22 February 2013)
- Economic forecast 2012-14: EU gradually overcoming headwinds – 22/02/2013 (European Commission, 22 February 2013)
- EU sees 2013 end to eurozone recession (USA Today, 22 February 2013)
- EU sees 2013 end to eurozone recession (GEI News, 15 February 2013)