ot - Thanksgiving Nov. 25 '99 -> Reasons to be cheerful 1 2 3 ....
4, 5, 6, -> 7, 8, 9, etc. and so forth
A special Thanksgiving edition of Banzai Bulls' B2K journal, time to move on to Latam Watch. After that Mars watch. <g>
No special order today folks, I kinda like the B2K "montage effect". Just add the Woodstock version of Sly an the Stone doin' HIGHER. Don't let the bad news bears get ya down.
news.euroseek.net
news.bbc.co.uk
news.bbc.co.uk
news.bbc.co.uk
afr.com.au
scmp.com
business-times.asia1.com.sg
hk.co.kr
business-times.asia1.com.sg
koreaherald.co.kr
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eubusiness.com
EU economy forecast to grow by 3% in 2000-2001
The European Union?s economy will move into higher gear in the second half of 1999 as a result of an improved international environment and a domestic demand that resisted the global slowdown. Real GDP growth in the EU is expected to accelerate to 3 % for the next two years, from 2.1% in 1999.
This upbeat forecast appears in the latest twice-yearly economic forecast published by the European Commission. According to the EU economists, the 1999 outlook is consistent with the last survey (published last spring). But the 2000-2001 forecast has been revised upwards. Inflation is expected to remain well below 2% in both 2000 and 2001, despite the adverse effects of higher oil prices.
1. Improved international conditions allowed the start of the recovery in the summer of 1999
Leading indicators, such as companies' export expectations, now show a high degree of optimism with favourable spillover effects to the domestic economy. Gross fixed capital formation and private consumption have remained robust, despite the period of slowdown in 1998/99. Growth should reach 2.1% for 1999 as a whole despite the sluggish start to the year.
The forecast assumes as the likely scenario a smooth transition to the year 2000 with only minor problems arising from the ?millennium bug?.
2. A more balanced economic development in 2000 and 2001
Real GDP growth in the EU is expected to accelerate from 2.1 % in 1999 to 3 % in 2000 and in 2001. The performance of the euro-area is likely to be slightly lower, with growth of 2.9 % in each of the coming two years, compared to 2.1 % in 1999. According to the forecast, the contribution of net exports is expected to shift from negative in 1999 to broadly neutral in 2000 and 2001.
Among domestic demand components, private consumption expenditure in the EU is forecast to continue growing by about 2ó % per year. Underlying this relatively healthy pace are the increases in real wages of around 1 to 1« % a year, smaller precautionary saving and, notably, further job creation.
Given these favourable domestic demand conditions, and the high and rising capital profitability, investment in machinery and equipment is likely to accelerate. However, the recent rise in interest rates and the still relatively low levels of capacity utilisation will contain the growth of investment, which is expected to be around 6 and 7 % per year over the forecasting period. Investment in construction is expected to grow only by around 4% in 2000 and 2001, mainly due to the relatively subdued activity in Germany which is coming out from a period of over-investment in the years just after reunification.
In the past two years, the economic performance of member states has shown some divergences. This was partly caused by a different exposure of member states to the international economic and financial crisis in 1997 and 1998. In addition, domestic factors played a role. Real interest rates have differed between member states and some countries succeeded in creating better domestic conditions, especially in the labour market.
Germany and Italy, with growth of 1.5 % and 1.1 % respectively, constituted the laggards in 1999. Because of their extended trade relations with their big neighbours, Belgium (1.8 %) and Austria (2.1 %) have also been displaying relatively slow growth, the former also due to the economic effects of the dioxin crisis in spring 1999. Ireland (close to 8 %), Greece, Spain, Luxembourg, Netherlands, Portugal, Finland and Sweden have shown a particularly strong performance in 1999 with growth rates above 3 %. The French economy (2.5 %) resisted the external shock better than expected, thanks to labour market measures favouring strong job creation. Growth in the UK had been revised upwards to 1.8 %, shrugging off the slowdown more quickly than anticipated.
The factors behind the recent differences in behaviour should gradually lose effect over the forecasting period. The forecast foresees a certain catching-up of presently lagging countries within the euro area and a greater homogeneity of growth performance among Member states. Over the forecasting period, annual growth rates for each Member State should exceed 2.5 % except for Italy (2.2 % in 2000) which is still in the process of fiscal tightening and Denmark (1.9 % in 2000 and 2.1 % in 2001) which is coming out of a five year period of strong expansion.
3. Employment creation
Total employment, both in the EU and in the euro-area, should grow in 1999 by around 1.2%. According to the forecast, this is only marginally less than in 1998 and is above the long-term average in the EU. Employment is forecast to increase by 1.2 % in 2000 and 1.1 % in 2001 in both the euro-area and the EU as a whole. Nearly 5.5 million new jobs are expected to be created in the EU between 1999 to 2001.
This favourable employment outlook should translate into a falling rate of unemployment, from 9.9% for the average of 1998 to this year's average of around 9.2% and 8 % in 2001. By the end of the forecasting period the total number of jobless is expected to fall to below 15 million.
Ireland, Spain, Luxembourg and the Netherlands will continue to register very high employment growth. Employment in Belgium, Greece, France, Italy and the UK will show growth rates close to the EU average, with some of these enjoying even slightly increasing growth between 1999 and 2001. The increase in employment is expected to slow down over the forecasting period from presently relatively high levels to more average levels in Portugal, Finland, and Sweden.
4. Only slightly increasing inflation
Average inflation in the EU (based on the harmonised index of consumer prices) fell to 1.2% in 1999. In some member states (D, F, A and S) inflation fell to around 0.5%, raising concerns about risk of deflation. In other countries (E, IRL, NL, P), more advanced in the cycle, inflation rates exceeded 2%. These inflation differentials, especially in the euro area, posed the question of the appropriateness of economic policy.
Since spring 1999 the international environment has considerably changed: rising oil prices and the slide of the euro against the US dollar in the first half of 1999. Nevertheless, inflation will remain relatively low over the forecasting period: average inflation (in terms of the harmonised index) in the EU is forecast to pick up moderately from 1.2% in 1999 to 1.5 % in 2000 and 1.6 % in 2001. Inflation in the euro area is forecast to be the same during 1999 and 2000. In 2001, inflation (1.5 %) is expected to be slightly lower than the EU average.
Behind the slight acceleration of the EU and euro-area averages, the forecast predicts some mainly moderate rises in inflation rates in the states with currently very low inflation. On the other hand, inflation rates in Spain, Ireland, Italy and Portugal are predicted to slow from 2000 to 2001 - once the effect of higher oil prices has passed through the price chain. Overall, this development will lead to a shrinking divergence of inflation rates among member states. Only in the Netherlands is HICP inflation expected to rise above 2.5 % in 2001.
This relatively benign development of domestic prices, despite a more adverse international environment, is partly due to more competitive supply side conditions, including the liberalisation in the telecommunications and energy sectors, with its stabilising impact on prices. But also wage inflation is displaying a relatively satisfactory pattern at present, which is forecast to continue in 2000 and 2001. Nominal per capita wages are predicted to increase by around 3 % per year and, therefore, slightly faster than the GDP deflator.
However, due to productivity growth of 1.8% and 1.9% in 2000 and 2001 respectively, real unit labour costs will continue to decline by almost one percent both in each of these years. Nevertheless, some states (P, UK, S, DK, FIN, NL, E, IRL) are relatively more advanced in the business cycle. In these countries, where consumer price inflation is generally above the EU average, unemployment has declined rapidly over recent years, and where skill shortages have sometimes started to appear wage developments have to be monitored carefully. The forecast notes that capacity utilisation is, and is likely to remain, below those levels at which price pressure typically develops. Strong investment activity will add to potential output.
5. Overall shrinking deficits ? but there are country differences
Budgetary consolidation continued in 1998 and 1999. But the budgetary stance became less restrictive in the wake of the economic slowdown. In 2000, the cyclical component, due to higher growth, and the reduction in interest payments are forecast to be the main factors in the further decline of government deficits. Given the no-policy-change assumption, this will continue in 2001.
Total net borrowing for the EU in 1999 should see an overall deficit of 1 % of GDP, which is better than initially expected, according to the forecast. Based on the implementation of the national budgets the average EU deficit should narrow to 0.6 % in 2000. On the assumption of unchanged policies, it falls to 0.3 % in 2001. For the euro-area the deficits are expected to fall from 1.6 % in 1999 to around 0.9 % in 2001.
6. Downward risks well balanced with upside potential over the forecasting period
The overall favourable forecast for the remainder of 1999 and for the next two years seems to be well supported by current indicators of economic conditions and tendencies. Nevertheless, the forecast warns that this could alter if, for example, the international environment turned out to be more adverse, or if the wage development were less moderate than at present.
More detailed information on the forecasts is available for download from the Europa server in supplement A of European Economy at:
europa.eu.int
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Source: European Commission
Date: 24 November 1999
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