13 MAY 2011

GDP in the EU 27 and in the Euro area is projected to grow by 1¾% in 2011 and close to 2% in 2012 according to the European Commission's Spring Forecast while the labor market sluggish condition is likely to lead to a « jobless recovery ».

Inflationary pressures are expected to rise in the coming two years due to commodities price spikes and to stand at nearly 3% in the EU 27 this year and 2.5% in the Euro area prior to abating to 2% and 1¾% respectively in 2012. The General government debt ratio is expected to stick at around 83% of GDP in the EU 27 and at 88% in the Euro area.

France's GDP was revised up and is forecast to reach 1.8% in full-year 2011, as growth fixed capital formation is projected to turn positive and rise +3.4% (from -1.4% in 2010) with equipment investment forecast to gain two percentage points to 7%, twofold a 14 year long term average.

Private consumption is projected to rise +1.6% and contribute to pushing up growth. Inversely, with structural reforms in the making, public consumption is forecast to move down to +0.6% (from +1.4%) due to the non replacement of retiring workers.  

Exports are nevertheless forecast to move down by four percentage points to +6.7%, match with imports +6.8% projected rise and lead the trade deficit to deteriorate to -3.1% (from -2.6%).

Among contributors to GDP, domestic demand is expected to climb +1.8% and to surpass that of 2010 (+1%) while inventories are seen to remain unchanged or +0.2%. Net exports are projected to impact GDP negatively and drop by a net -0.2%.

The employment rate is expected to rise to +0.8% while unemployment is projected to stagnate for the third consecutive year at 9.5% of the working population. Compensation of employees are forecast to inch down to 2% (from 2.3% in 2010) due to the latest programs prior to returning to that level in 2012. Wages are expected to contract further to -0.7% (from +0.3%) and households savings rate to ease slightly to 15.3% (from 15.9%). Yearly inflation is projected to reach 2.2%

The General government balance is projected to improve to -5.8% (from -7%) due to lesser expenditures while the General government gross debt is forecast to swell to 84.7% of GDP (from 81.7% in 2010) and worsen in 2012 to 86.8% due to debt costs and higher interest rates.

In Germany, and for the full-year 2011, the Commission' s projections set GDP at +2.6% (from 3.6% in 2010) due to the labor market dynamics and higher wages likely to impact positively consumer consumption. Inflation is expected at 2.6%. The report notes that outside the Euro area, « the strong German performance is outpaced by Poland, the only EU economy to have escaped a recession in 2009 ».

Spain's growth forecast is unchanged at +0.8% (from -0.1%) due to a record high unemployment rate 20.6% while Italy's GDP projections were moved down to +1% (from +1.1%) as major GDP contributors were revised including lower domestic demand and inventories. The UK, France's fourth major trade partner, is set for growth to reach +1.7% (from + 2% forecast in the fall) with net exports as a main driver to economic recovery while inflation is likely to rise above 4% in 2011.