EU Commission Publishes Weaker Real Growth Projections

February 23, 2012

Real GDP in the euro area is now expected to contract this year by 0.3%, a 0.8 percentage point downward revision from what the EU Commission was predicting three months ago.  The dispersion of likely results among members is very wide.  Among peripherals that have received outside aid, GDP is expected to fall by 4.4% in Greece and  3.3% in Portugal while firming 0.6% in Ireland.   For the four largest economies using the euro, the Commission now pencils in 2012 growth of 0.6% in Germany, a downward revision from 0.8%.  French GDP firms merely 0.4%, a downward revision from 0.6%.  Negative growth is predicted of 1.3% in Italy and 1.0% in Spain.  The table below compares projected growth in 2012 to projections of 2011 and actual 2010 results.  Cumulative five-year growth rates between 2007 and 2012 are also provided.  The table shows full-euro area, selected members of that bloc, and three countries (Britain, Sweden, and Denmark) that are in the EU but not Euroland.

GDP Growth, % 2010 2011f 2012f 2008-12f
Euroland 1.9 1.4 -0.3 -1.0
Germany 3.7 3.0 0.6 3.1
France 1.5 1.7 0.4 0.7
Italy 1.5 0.2 -1.3 -5.1
Spain -0.1 0.7 -1.0 -3.2
Portugal 0.4 -1.5 -3.3 -6.2
Ireland -0.4 0.9 0.6 -8.9
Greece -3.5 -6.8 -4.4 -16.9
Holland 1.7 1.2 -0.9 0.2
Belgium 2.3 1.9 -0.1 2.2
Finland 3.7 2.7 0.8 -1.4
Austria 2.3 3.1 0.7 3.6
Britain 2.1 0.9 0.6 -2.0
Sweden 5.6 4.2 0.7 4.4
Denmark 1.3 1.0 1.1 -3.3

The rightmost column highlights how badly Euroland’s high debt economies have suffered. In a vicious circle, weak growth has inflated government deficits and the rise in outstanding debt, while self-imposed austerity is depressing those economies further.  The severest implosion by far involves Greece, with an estimated five-year 17% implosion of GDP.  GDP in 2012 is also likely to be 5.0% or more below 2007 levels in Ireland, Portugal, and Italy.  Similar drops of a bit over 3% will be felt in Spain and Denmark, and a 2.0% cumulative decline is predicted in Britain.  Euroland’s second largest economy experiences less than 1% of cumulative growth, and the whole common currency area’s GDP will still be about 1% less this year than it was in 2007.

By comparison, U.S. GDP this year will probably run 3.0% above the 2007 level, or marginally less, giving America a similar growth profile to that being experienced in Germany.  Like many of Euroland’s other economies, Japanese GDP in 2012 will be smaller than such was in 2007, to wit about 1.5% less.  And then there is China, which stands much further apart from Germany and the United States than those economies do from the whole euro zone or even the area’s weakest links.  Assuming that Chinese GDP expands 8% or a shade faster this year, real GDP there will have leaped 56% from the level in 2007. 

The EU Commission also unveiled new harmonized consumer price inflation forecasts.  Euroland’s projected 2012 inflation rate has been bumped upward through the ECB’s target ceiling to 2.1% and will have averaged 2.0% per annum over the five years between 2007 and 2012.  The higher forecast reflects more elevated energy costs than assumed previously but also the impact of higher indirect taxes that are being imposed in a dash for budget deficit reduction.  Among Euroland’s four largest economies, CPI inflation will have averaged over the past five years 1.7% in Germany, 2.0% in France, 2.3% in Italy, and 2.1% in Spain.  With a pace of 2.5% per annum, Greece is an outlier but to a much smaller degree than in comparisons of economic growth.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.