European Commission Forecasts

Posted on 03. Nov, 2009 by Geert in Uncategorized

All in all, GDP growth in 2010 and 2011 is forecast to reach 9.6% and 9.5% respectively, still implying a relative underperformance compared to the average rate observed since 1978. However, demand by China should give a bottom to global prices of raw materials including petrol.The European Commission made an update of its forecasts.

In short, it sees a gradual normalisation of growth and inflation. However, deficits and unemployment are forecast to remain depressed.The Commission sees a slow recovery in Euroland, and no risks of a double dip. The inconsistency in this scenario is that the EC sees unemployment rising to very high levels in some member countries. In Spain, unemployment would rise to above 20%. Other “disaster-countries” are the UK and Ireland. But also France (deficit above 10% for the coming years) doesn’t look great.

Compared to the EC forecast, I am more concerned about the risk of deflation in Europe. Furthermore, I think that budget deficits will require more urgent (potentially growth decreasing) measures. Also, this case is based on a stabilisation in financial markets, which is far from sure.

The EC has a forecast and a report on China which is very upbeat. 10% growth in 2010 and 2011 are above consensus. The EC sees the 10% as a very linear goal, independent from the growing size and imbalances of the Chinese economy:

All in all, GDP growth in 2010 and 2011 is forecast to reach 9.6% and 9.5% respectively, still implying a relative underperformance compared to the average rate observed since 1978. However, demand by China should give a bottom to global prices of raw materials including petrol.

The forecast for the US can be found here. The Commission sees 2,2% growth of real GDP in 2010. Half of that would be on the back of inventory rebuilding (!), while private consumption would remain negative.

A summary of forecasts can be found here.