BRUSSELS, 10 September 2003 — Europe’s beleaguered economy is teetering on the edge of recession, data confirmed yesterday, but officials forecast that the 12-member euro-zone will pull back from the brink over the next few months. The European Commission, which is battling to persuade key euro-zone countries to keep to strict budget rules amid the slowdown, described the worse-than-previously-forecast figures as “disappointing.”
The new figures “confirm that growth in the first half of this year has been disappointing,” acknowledged Gerassimos Thomas, spokesman for EU monetary affairs commissioner Pedro Solbes.
According to the EU’s Eurostat data agency, GDP in the zone which shares Europe’s single currency contracted by 0.1 percent in the second quarter, after stagnating in the first quarter. The figures — including a downward revision of first-quarter growth from 0.1 percent to zero — put the bloc dangerously close to a technical recession, defined as two consecutive quarters of negative growth.
But the commission, the EU’s executive arm, forecast that growth will pick up in the third and fourth quarters, predicting GDP growth of 0-0.4 percent and 0.2-0.6 percent respectively. “The acceleration in growth predicted for the fourth quarter stems from the recent improvement in domestic retail confidence, as well as external factors,” said the EU executive in a statement.
The gloomy data came as Brussels was again forced onto the back foot over the euro zone’s embattled Stability and Growth Pact, which sets the rules underpinning the single currency.
Brussels is struggling to bring its influence to bear on EU heavyweights France and Germany, who are both at risk of breaching the 1997 pact’s strict rules for a third year running in 2004. Under the pact, euro zone members must keep their public deficits below 3 percent of GDP.
France in particular is heading for a head-on collision with Brussels, as it presses ahead with tax cutting plans which could see its deficit rise to 4 percent of GDP next year. The commission is facing a severe test of its credibility as it works out how to persuade Paris and others to toe the budget pact line.
Meanwhile, the International Monetary Fund said yesterday investors are returning to emerging markets and to shares but this trend could end if long-term interest rates rise and company results disappoint. In its semi-annual global financial stability report, the IMF gave its latest analysis of global financial markets and identified potential weak points in order to stave off crises.
Generally speaking, “global financial vulnerabilities have declined,” the head of the IMF’s capital markets department, Gerd Hauesler, told a news conference that coincided with the report’s release in Washington.