European economic performance 'disappointing'
European employers trimmed their economic growth outlook for the 25 EU nations yesterday to 1.6% in 2005 from the 2.2% they forecast a year ago – and sounded only a tad upbeat about next year, predicting growth of 2.1%.
The 2005 forecast matches that of the European Commission, though EU officials privately acknowledge their 1.6% growth forecast may turn out to be optimistic.
The economies of the 12 European Union nations that have the euro as their common currency will expand by a mere 1.3% this year, down from the 1.8% predicted last year, said Unice, the group representing industrial and employers federations from 33 European countries.
“These revisions reflect a disappointing pace of growth in the recent past and expectations of further dampening effects stemming from high energy prices,” the Unice survey reported.
“On the whole, the current economic performance in Europe is yet again disappointing, particularly given the continued strong pace of global growth,” Unice said. ”Consumption and business investment growth are relatively weak at this juncture, while exports appear slightly more resilient.”
Still, European businesses expect “a mild strengthening” of economic output in 2006 “to 2.1% and 1.8% in the EU and in the euro area, respectively.”
“Dynamic world demand, favourable financing conditions and relatively sound corporate profitability should set the path to new investment and hiring plans” in 2006, the survey said.
It added: “Somewhat better labour market prospects should in turn help stronger, albeit still hesitant, private consumption growth.”
Europe’s disappointing 2005, Unice said, should be ”viewed against the backdrop of record high oil prices.”
It said the “underperformance of the EU in the global economy – and in particular vis-a-vis other main oil-importing economies such as the US and Asia - is striking.”
That contrast exposes “Europe’s persistent inability” to generate sustainable growth as well as its vulnerability to energy price shocks, it added.
As for the future, Unice said corporate restructuring may encourage companies to step up investments and hirings.
“Partial indications” for 2007 show growth is generally expected to continue at a moderate pace, the survey said.
The report made these other points:
:: The worst performers of 2005 are likely to be Germany and Italy. The British economy is starting to show “some signs of fatigue” but still outperforms those of France, Germany and Italy.
:: The best performers were, again, the East European nations that joined the EU in 2004, Scandinavian countries, Ireland and Spain
:: The EU will end 2005 with an inflation rate – EU-wide as well as in the euro area – of around 2%.
:: The EU labour market will show “limited improvements,” but not enough to dent the EU-wide unemployment rate of 8.9 percent. Unemployment for all of 2005 will be 9.1% in the euro area. In 2006, it is expected to reduce slightly to 8.7% EU-wide and 8.8% in the euro zone.
:: The outlook for EU companies’ profitability remains positive overall but will not improve significantly in the coming months except in Germany, due to corporate restructuring efforts there.
