EUROPES ECONOMY may gather strength next year after global governments spent billions of dollars on stimulus measures, the European Commission said yesterday.
The 16-nation euro region may grow 0.7 per cent next year and 1.5 per cent in 2011 after shrinking 4 per cent in 2009, the Commission said in a quarterly report. In the fourth quarter, gross domestic product (GDP) probably rose 0.2 per cent from the previous quarter, when it increased 0.4 per cent, it said.
European companies are boosting output and investment to meet reviving global demand after the region’s economy emerged from its worst slump in more than six decades. While European economic confidence rose in November, a stronger euro and increasing unemployment are threatening to curb growth. “The current recovery is underpinned by massive economic support provided by governments around the world, which will eventually have to be scaled back, the commission said in the report.
Looking ahead to 2010, uncertainty remains high and setbacks in the recovery cannot be ruled out.
The European Central Bank (ECB) said earlier this month that it expects the euro-region economy to grow about 0.8 per cent next year and about 1.2 per cent in 2011. The Frankfurt-based ECB previously forecast GDP growth of around 0.2 per cent in 2010.
Euro-area governments’ fiscal policies “will remain appropriately expansive in 2010”, the commission said. “Provided that economic circumstances do not unexpectedly deteriorate again, fiscal consolidation will start in 2011 at the latest,” with member states committed to an “orderly and time-consistent exit strategy,” it said.
“Fiscal sustainability needs to be restored as soon as possible,” Marco Buti, head of the commission’s economics department, said in today’s report, citing Greece in particular. “In light of the ballooning public finance deficit, the commission will come forward early next year with recommendations on how to correct the excessive deficit.”
Greece is trying to convince investors it can cut its budget deficit from 12.7 per cent of GDP to below the EU’s 3 per cent limit by 2013. Standard Poor’s last week joined Fitch Ratings in cutting Greeces credit rating to BBB+ on concern that the deficit-reduction measures don’t go far enough.
For the region as a whole, the euro’s 14 per cent gain against the dollar since mid-February is threatening to curb the recovery just as rising unemployment undermines consumer spending. European officials have urged China to loosen currency controls after the country kept the yuan largely unchanged versus the dollar for more than a year, exposing Europe to the US currency’s slide.
ECB council member Ewald Nowotny said last week that it is “quite obvious that a prolonged and strong revaluation of the euro would have a negative effect on the export performance”.
“China needs to make further progress to increase domestic consumption, building on recent efforts and underpinned by a gradual appreciation” of the yuan, Mr Buti said in the report. – (Bloomberg)
