Growth in Ireland and the rest of the EU this year and next will be weaker than previously forecast, according to the European Commission as it warned of increasing weakness in the global economy and especially in emerging markets.
The downbeat autumn forecast said a slow recovery had set in, while it predicted the eurozone economy will shrink by 0.4% this year and 1.1% next year — down from 1.2% forecast in May, while the jobless number is expected to hit 20 million at 12.2% this year.
The subdued growth outlook is likely to increase the likelihood of Ireland looking for a precautionary credit line from the EU’s rescue fund, the ESM. Economics commissioner Olli Rehn said they were waiting for signals from Dublin on their decision.
While Ireland was headlined as ‘rebalancing on track’ in the 177 page report, there was little to be cheery about with unemployment remaining stubbornly high across the eurozone with continued misery, especially for young people, while in vulnerable countries banks were making little positive contribution to growth.
Ireland’s growth this year was revised down from 1.1% in May to 0.3% of GDP — closer to the Government’s estimate of 0%, while for next year the forecast is for 1.7% of GDP compared to 2.2% in May.
The downward revision was on the back of the weaker than expected developments, especially in private consumption in the first six months. Merchandise exports were lower, but so were imports leaving the ratio unchanged. Expiring pharmaceutical patents expiring was a downside risk.
The current account surplus was expected to remain at historically very high levels while the improving labour and property market should help improve private consumption, but the public investment to GDP ratio is historically low.
Unemployment, the Commission report noted, has fallen by close to two percentage points since its peak and migration is beginning to decline.
Employment has grown for three consecutive quarters, including full-time jobs, but earnings remain weak. The unemployment rate was expected to decline faster than previously thought, but would remain high.
Mr Rehn appealed to both France and Germany, as the two largest euro economies, saying that “together they hold the key to stronger growth in Europe”.
While France needs economic reforms, including in their pensions, Germany needs to boost infrastructure investment and increase domestic spending by cutting taxes for the lower paid especially. Their economic activity will continue to be robust while in France consumption is expected to remain resilient but unemployment will persist.
Both countries received recommendations on these issues in July, which he said hinted that they had not been heeded so far.
On Germany’s current account surplus he said he will discuss this “very important issue” next week, suggesting it will be part of his recommendations to Berlin on their budget.
The ideal should not be above a 6% average over three years while Germany’s has been above this since 2007.
This was the first time the autumn forecast was devised after assessing the draft budgets of all the eurozone countries.
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