<<Europe trims growth targets on Asia, Russia
By Myra MacDonald
PARIS, Sept 9 (Reuters) - Europe's governments on Wednesday acknowledged for the first time that crisis in emerging markets would dent their economic recoveries, as both France and Italy revised down growth forecasts.
In Paris, France's Socialist-led government said it was revising down its growth forecast for 1999 to 2.7 percent from 2.8 percent after 3.1 percent growth this year. "For 1999, we have to take account of an uncertain international situation and I want to be cautious," Finance Minister Dominique Strauss-Kahn told reporters after the government approved a budget for 1999.
In Rome, Italian Prime Minister Romano Prodi said Italian gross domestic product was likely to grow by around 2.0 percent in 1998 rather than the 2.5 percent initially expected because of economic crises in Asia and Russia. But he told RAI state radio that he thought both Europe and the United States were in good economic health. "I do not see a recession, a 1929, a tragedy."
Analysts agreed, saying that strong domestic demand and plans for economic and monetary union would largely shield the European economy from the Asian turmoil which has spread across emerging economies to Russia and Latin America. "We are not talking about going from an optimistic outlook to an overly pessimistic one," Bamque Nationale de Paris economist Cyril Beuzit said.
France was the first of the big European economies to trim its 1999 growth forecast, and economists expect Germany to follow, but not until after its September 27 election. "I think nobody wanted to do it (cut their forecast) because it has a kind of snowball effect," Deutsche Bank economist Patrick Mange said. "France has taken the first step, and I think after the elections Germany will follow," he added.
On Wednesday, German Economics Minister Guenter Rexrodt said he was sticking to his forecast of 2.9 percent growth this year, after quarterly GDP data shouing a 0.1 percent rise in the second quarter, down from 1.4 percent in the first. "The turbulence linked to the crises in Asia and Russia doesn't change much, since Germany's exports to those regions are relatively small," he said. The German government has also stood by its three percent growth forecast for next year, but independent economists have said it is likely to turn out nearer to two percent.
The problem for Europe's governments is making forecasts which are seen as realistic without injecting pessimism which could dent consumer confidence, and growth. For example, Spanish Economy Minister Rodrigo Rato said earlier this week that he saw no need to cut forecasts of 3.7 percent growth in 1998 and 3.9 percent for 1999, despite downward revisions by private economists. Belgium said earlier this month that it was incorporating the possible consequences of the Asian crisis by revising its 1999 forecast down to 2.6 percent from 2.8 percent.
But while economists may find government forecasts over-optimistic, they see little sign of European growth being dramatically affected by the turmoil in emerging markets. Alongside strong internal demand, Europe's economies are also underpinned by very low short and long term interest rates. Most economists now expect the Bundesbank to leave leading interest rates unchanged until the end of the year, so the European Central Bank kicks off EMU in January 1999 with an official rate of around 3.30 percent.>> |
