Commission's forecast shows consolidated economic recovery but progress is still uneven

The European Commission has released its autumn forecast for 2010-2012 which shows an expected growth in GDP by around 1.75% in 2010-11 and by around 2% in 2012. However, as highlighted by the Commission, this recovery is uneven and many Member States are going through a difficult period of adjustment.

According to the European Economic Forecast progress of the autumn for the period 2010 – 2012, the economic recovery in the European Union, while still fragile and uneven across Member States, is proceeding at a somewhat faster pace than anticipated in the spring.

Real GDP has surprised on the upside so far this year and particularly in the second quarter, when it picked up by an exceptional 1% (quarter-on-quarter) in both the EU and the euro area. This strong performance stemmed in large part from the ongoing export-driven industrial rebound, in line with the continued strong dynamics of global growth and trade in the first half of the year already showed by spring forecast, most notably in emerging markets.

However, amid a softening global environment and the onset of fiscal consolidation, activity is expected to moderate towards the end of the year and in 2011, but to pick up again in 2012 on the back of strengthening private demand. With the economic recovery taking hold in the EU, labour-market conditions are expected to slowly improve over the forecast horizon, as is the budgetary situation. The unemployment rate is projected to fall to around 9% in 2012, with the public deficit declining to about 4.25% of GDP.

Strong disparities between recovery in different member states still remain

According to the forecast, the aggregate picture masks marked differences in developments across Member States. Some countries, in particular Germany, but also some smaller export-oriented economies have registered a solid rebound in activity, while others, notably some peripheral countries are lagging behind.

Factors explaining the divergences include trade orientation, the product mix of exportables, degree of openness, exposure to the financial-sector disturbances and the existence of sizeable internal and/or external imbalances. Looking forward, the expectation remains for a differentiated pace of recovery within the EU, reflecting the challenges individual economies face and the policies they pursue.

Lingering concerns about fiscal sustainability, especially in some euro-area Member States that remain under intense market scrutiny and differences in competitiveness positions appear among the most important challenges in this regard.

Among the largest economies, the upturn is set to be notably strong in Germany, where economic activity is expected to expand by 3.7% this year, more than double that of the euro area. Meanwhile France is just below the area average, Italy 0.5% lower, and Spain is projected to remain in recession. Outside the euro area, the very strong German performance is nearly matched by Poland, the only EU economy to have escaped a recession last year, while the recovery in the United Kingdom is expected to match only the moderate EU average.