The European Commission forecasts that the stagnation of the French economy will continue this year, with gross domestic product (GDP) decreasing by 0.1% over the course of 2013, a slightly worse prediction than that given by the French government. The Commission believes that households’ declining disposable income as a consequence of planned tax increases and rising unemployment will be offset only partially by a slowdown in inflation.
Unemployment started rising rapidly in the final three months of last year – from 9.8% at the same point in 2011 to 10.5%. “Despite efforts to reform the labour market, unemployment is expected to continue rising,” the Commission’s forecast says.
The Commission insists that its gloomy forecast for France could prove overly pessimistic if François Hollande, the country’s president, can reap the rewards of structural reform more quickly than expected. “On the other hand,” the report says, “a further deterioration of firms’ competitiveness and a possible loss in confidence resulting from higher deficit outcomes might threaten a fragile recovery.”
The Commission says that France’s deficit is likely to improve this year, but without any change in policy would deteriorate again in 2014.
The Dutch economy contracted significantly last year and any recovery in 2013 is expected to be “very fragile”. GDP is expected to fall by another 0.8% this year and should pick up only very slowly towards 2014.
The European Commission says that domestic demand fell by 1.6% over the course of 2012 as a result of low disposable income, the impact of the government’s austerity policies, pension cuts and a fall in house prices.
“With real disposable income staying subdued and consumer confidence continuing to hover around historical lows, private consumption expenditure growth is projected to remain negative in the near term and to broadly stabilise in 2014,” the Commission says. Growth will be supported by a good level of exports. Import growth, however, will remain more sluggish.
As in many parts of the eurozone, unemployment is on the rise, and this will continue throughout 2014, the Commission predicts. With a major slump in the housing market, the property sector has been particularly badly hit by job losses.
The Dutch government is struggling to reduce its deficit. Indeed, the effort is “coming to a standstill”, according to the Commission.
Belgium’s fiscal deficit is a major worry for the European Commission. The government had agreed with the Commission that it would cut its deficit to 3% of GDP by the end of 2012, but it was not successful. The country’s deficit stands at 3.9%, with the nationalisation of Dexia bank contributing an estimated 0.8 percentage points.
The deficit is expected to dip below 3% in 2013, as a result of measures announced by the government at the end of June and a decline in interest rates, but will rise back up to 3.1% in 2014.
Belgian GDP fell by 0.2% over the course of 2012 as domestic demand fell to its lowest level since 2009. “Private consumption is set to stagnate this year amid deteriorating employment prospects and recent losses in real disposable income,” the Commission says.
It predicts that overall domestic demand is set to continue to contract throughout 2013 because of a lack of investor confidence, a depressed construction sector and tightening credit conditions.
It adds that uncertainty over changes to employment law, notably rules on making people redundant, is adding to an absence of risk-taking.
The Slovenian government’s delay in implementing important reforms is prolonging the country’s recession, the European Commission says. The economy contracted by 2.3% in 2012 and the Commission predicts a decline by 2% this year before stabilising in 2014. “The protracted weakness of the economy has subdued inflation, labour costs [and] credit growth, and it has resulted in a current-account surplus,” the Commission says.
The big threat to the country’s economy is its banking sector. The Commission says that further delays in resolving the crisis and restructuring the highly-indebted corporate sector have already resulted in a downward revision of growth forecasts. “Any additional postponement of required bold structural reforms would lead to a further deterioration of growth prospects,” the Commission warns.
The government managed to get the deficit down from 6.4% of GDP in 2011 to 4% in 2012, but it is projected to be back up to 5.3% this year and 4.9% in 2014.
Spain’s biggest problem is its unemploy-ment rate which, at 26.7%, is the second highest in the eurozone after Greece. The European Commission does not foresee a reduction in unemployment in the near future. Spain is struggling with growth too. Gross domestic product is expected to contract by 1.5% in 2013 – even more than it did in 2012. The Commission forecasts a return to growth (of about 1%) in 2014.
Spain is another country that has struggled to meet deficit reduction targets, and in 2013 the deficit is expected to be 6.5% of GDP. It is expected to widen again, to 7%, by 2014.
The principal negative factor is that financial conditions are likely to “remain a drag” on economic growth in the near future, the Commission says. “The necessary restructuring of the banking sector and the weak growth outlook are expected to imply continued tight credit conditions for other domestic sectors in the short term, thus constraining private consumption and investment decisions,” the report adds.
The country’s only source of growth will be its net exports. Private consumption is expected to contract faster than in previous years as families spend less, unemployment continues to rise and people have less disposable income. Private investment is also expected to contract significantly.
Figures from 2012 are European Commission forecasts. Deficit and debt rates are expressed as a percentage of GDP.
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