The European Commission attached the tagline “from recession towards a slow recovery” to its spring economic forecasts, warning of a “long and stony road” before there is light at the end of the tunnel. The report states that “major advancements in the EU institutional framework” averted a far worse financial crisis and that confidence was likely to return towards the end of the year. However, the economic forecast shows that there are major differences between EU member states.
The economy is growing but the effects of growth have not been felt yet, the Commission’s report says. Growth is stronger than the EU average thanks to strong domestic demand, but recovery will take time, as business and households “remain cautious”.
The country’s export-led recovery has “come to a halt”, the European economic forecast report says, with GDP projected to stagnate this year. The government’s austerity measures are likely to have an adverse impact on growth. Inflation remains high but the budget deficit is decreasing.
The report says that Bulgaria has a slow recovery ahead, although it is restrained by the weaknesses of the labour market. An improvement in the budget deficit is predicted, while unemployment, which increased steeply between 2009 and 2011, is forecast to level off.
The country has been hit by much lower domestic demand than usual, and economic activity was badly affected by an accident at the island’s largest power station in July 2011. Tourism remains strong, but the government is struggling to get the deficit under control.
The country is mirroring much of the EU in entering a period of mild stagnation – but it is expected to recover slowly towards the end of the year. The government is gradually getting the deficit down, but unemployment is rising and wages are decreasing.
Denmark’s economic performance is predicted to be among the best in the EU. GDP is growing at a slow pace, driven mainly by domestic demand and the government’s stimulus package.
The country was hit by a slowdown in exports late last year, notably in the electronics sector, but there are already signs that the market is picking up again. Domestic demand remains strong, so growth figures are expected to be good over the next two years. Unemployment remains high and inflation, which hit 5.1% last year, remains a concern.
Growth is expected to continue slowing down during the first half of this year. Exports have fallen, leading to the country recording negative trade and current-account balances for the first time in two decades. The labour market is facing major structural changes, including the raising of the retirement age, as the government strives to meet ambitious employment targets. The Commission says that a balanced budget is “in sight”.
François Hollande, the country’s new president, has to deal with an economy that is recovering only slowly. The recovery is being supported by investments, exports and a rise in energy consumption, the report says.
Contrary to some assumptions, Germany’s economy does have weaknesses. The country recorded strong growth in 2011, with GDP expanding by 3%, but the eurozone sovereign-debt crisis had its effects. Industrial orders declined considerably in the second half of the year. Analysts believe that household consumption will be the main contributor to growth this year, underpinned by steady improvements in the employment rate. Higher-than- expected oil prices, leading to higher inflation, could put this at risk. Export prospects are noticeably weaker than in 2011 because of lower demand in the eurozone.
The economic forecast report describes Greece as an “economy longing for the turnaround”. As political parties struggle to find a consensus on how to govern the country, the economy – despite a €174 billion international bail-out – shows little sign of improvement. The contraction in economic activity in the final three months of 2011 was far deeper than expected, unemployment is growing and the current-account deficit “remains at an unsustainable level”, according to the report.
“Muddling through” is how the Commission describes the attempts of Viktor Orbán, Hungary’s prime minister, to get his country’s economy back on track. The export sector continued to drive growth, but domestic demand is low and disposable income is falling, while inflation is unexpectedly high.
Ireland, which is following a programme of fiscal consolidation as part of its international bail-out agreement, returned to growth last year after three years of contraction. The Commission says that Ireland’s fiscal adjustment is “on track”, inflation has stayed low, and the unemployment rate has stabilised. Although disposable income for many people has shrunk, there is room for optimism.
Italy, under technocrat Prime Minister Mario Monti, has been hit hard by the eurozone crisis, with the economy contracting at the end of last year. Domestic demand is expected to fall sharply this year while rising unemployment, inflation and lower-than-inflation wage increases all provide tough challenges in the months ahead.
The Latvian economy has remained resilient in the face of the eurozone crisis, with public finances improving and unemployment falling thanks to the creation of new jobs and emigration. However, this is forecast to slow down.
Economic growth remained strong last year. Although it is expected to slow down this year, growth is expected to remain robust as the government gets to grips with the budget deficit, which fell from 7.2% in 2010 to 5.5% last year.
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Weaker performance in financial services and manufacturing sectors has dampened growth prospects, with expectations modest for this year. This has slowed job creation and unemployment is rising. The budget deficit is expected to rise.
The country’s growth is slowing but remains above the eurozone average, the report says. Consumer confidence remains low because of rising unemployment.
Weak domestic demand heralded a sharp downturn in the second half of last year. Unemployment is on the rise, with prospects “remaining dim” because of public-sector job losses, while disposable income dropped for the fourth year in a row.
Economic growth was “impressive” in Poland last year, according to the Commission. This will continue but at a slower pace based on domestic demand – with focus shifting from consumption to private investment. The budget deficit continues to shrink.
One of the three eurozone countries to receive an international bail-out, Portugal continues to reform its economy. The downturn in economic activity last year was not as bad as predicted. However, unemployment is rocketing, with no slowdown in sight. This year Portugal is carrying out consolidation measures worth more than 5% of GDP, demonstrating that despite optimism, significant challenges remain.
Domestic demand is helping Romania on the road to recovery, with last year’s growth figures better than expected. Growth was driven by an increase in industrial output and an “exceptional agricultural harvest”.
The country’s growth figures remain good, the report says, but momentum is slowing on the back of lower domestic demand, which is not expected to pick up until next year. Exports are strong and will remain the major contributor to growth.
Growth is sluggish and slowing still further because of a major decrease in investment and a decline in construction. Private consumption also shrank last year. This is forecast to continue, along with a worrying rise in unemployment – the rate has doubled in just over three years.
The country is entering recession as it tries to restructure its economy after the bursting of the housing and construction bubble. The Commission says that the unemployment rate is “unacceptably high” and is expected to rise further. The Spanish government is planning to inject capital into the banking sector as it struggles to deal with its exposure to the real-estate sector.
Sweden’s economy had been growing steadily until it contracted at the end of last year. There are “mixed signals” about recovery: business and consumer confidence is growing, but industrial production is disappointing.
The UK experienced poorer-than- expected growth figures last year, but there is a “brighter outlook”, according to the Commission, thanks to more stability in export markets and improving household consumption. Low household consumption was the main reason for the weak growth figures. In addition, the banking sector “remains subject to non-negligible tensions”. Weak consumption is expected to continue, as is the rise in unemployment, as fiscal consolidation in the shape of tax rises and savings continue.