EU Spring Forecasts

The EU Commission released its Spring Forecast today. The abstract states that:

The economic recovery is underway in the EU, although it is set to be a gradual one. The economic recession came to an end in the EU in the third quarter of last year, in large part thanks to the exceptional crisis measures put in place under the European Economic Recovery Plan, but also owing to some other temporary factors.

The speed of recovery is forecast to increasingly vary across EU countries, reflecting the extent of the housing-market correction needed, the size of the financial-services sector and the degree of internal and external imbalances.

Once you get beyond the positive start they do admit that there is significant uncertainty. Also it is hard to get excited about an EU unemployment rate of 10% and debt of 80% of GDP.

For Ireland they paint a positive picture for 2011 with 3% GDP growth and a slight reduction in the unemployment rate.

By Edgar Morgenroth

Professor of Economics at Dublin City University Business School

16 replies on “EU Spring Forecasts”

Public Budget Balance (as a % of GDP) – 2009, 14.3% 2010, 11.7% – if the €4bn to Anglo last year was part of the Public Budget, then what about the €8.3bn +++ this year? Surely that’s not credible?

@Jagdip Singh – from the outside it looks like there is a bit of arbitrariness on what is in and what is out of those figures, but one way or another these numbers are not good and we can figure out the overall problem (Colm McCarthy did a rough calculation on another thread).


The report on Ireland finishes with the following:

“On 30 March 2010, the authorities announced the transfer of a first tranche of loans to NAMA and the likely need for further capital injections into some banks. An effect of such capital injections on public finance
developments within the forecast horizon cannot be excluded. However, in the absence of detailed information on the nature and size of these
operations, the forecast does not include any impact.”

The bank recap money will be added but they are ignoring if for now. Expect that 11.7% figure to be much much higher when they do start to take account of the recaps.

@Edgar and Seamus

Both INBS and Anglo produced their accounts for year (in Anglo for 15 months) ended 31 Dec 2009 and both include the most recent govt injections (€2.7bn INBS and €8.3bn Anglo). The accounts were published at the end of March 2010. However if they hadn’t been given the injections prior to that (by way of committment or promissory note or cash) then they would have been insolvent to a significant degree. To read the EU report you would get the impression that these injections were contemporaneous with the EU report being written – they weren’t, they must have been known about for at least three months, otherwise the government was operating Anglo on an insolvent basis.

So I just don’t think the EU forecast is credible in that regard.

@Jagdip Singh & Seamus Coffey – what would you do in the Commission’s place? This is a very precarious situation and poking the finger into it is probably the last thing they want to do right now. The numbers can always be revised. The markets will know what is going on but the Commission obviously does not want to spook the masses. I noticed that the Irish Times reported the 3% forecast – that is probably the sort of headline the Commission would want right now.


Crikey is it that bad? Is that why they forecast Greece’s GDP to decline by 3% this year so that they could say “Look at Ireland, they’ve cut their public expenditure and raised taxes and now look at them – their economy will grow by 3% next year” – Neat symmetry, +3% responsible Ireland, -3% irresponsible Greece.

As for the masses, what are they (we!) going to do? Riot? Strike? Withdraw our cash from the banks?

@Jagdip Singh & Brian Lucey – I can only speculate. RTE went with the 3% too. The FT reports “Brussels raises growth forecasts. Recovery threatened by Greek crisis Commission warns” – they must have read a bit more. If you look at the forecasts for Greece you will see that they are forecast to decline by a lot less than we have. I do not think that is credible – one way or another they are in for a very bad time. I called it the mother of all recessions on another thread – I should have said the mother of all depressions.

@ Brian Lucey

“Fake it till we make it?”

Absolutely. Better than simply holding our hands up and letting the markets tear us asunder. I know you’re all in favour of rewriting the socioeconomic/political makeup of this country via some agressive treatment of bank and sovereign creditors, but the EU, the ECB, the IMF and Brian Lenihan quite clearly aint.

I’ll give the EU a pass on their forecast for the 2010 budget deficit omitting the bank costs. That’s cheating within the rules. But I do hope that they – and all other government and quasi-government bodies – aren’t deceiving about the likely growth rate in 2011, are they? Fiddled figures contagion? That’s a straight red card offence.

@ Eoin

Are you happy with an economic system which permits the private appropriation of speculative gain while socialising the losses ? There is, of course, fierce competition among the predators, but the capital markets generally tranfer wealth from the less powerful to the more powerful. It’s rigged.

Gambling with OPM is great fun, maybe, but it has dangerous consequences, as the Greek situation illustrates. As I understand Brian’s position, he would simply like to see some reasonable deterrents for the most gratuituous offenders.

No guillotines or defenestrations, just a few meaningful consequences in the pocket. That seems entirely fair.

I don’t get it. I thought we had to get closer to balancing the deficit in the budget by taking about 4B out of the economy through cuts or taxes. Yet ‘in 2011, the deficit ratio is projected to increase to just above 12% of GDP on a **no-policy-change basis** (and zero one-offs).’ and in ‘real disposable income [will] expand again’. This is all excluding the bank recapitalisation which others pointed out.

Have we magically avoided the need for any more taxes or cuts this December – or do I need to return to Hogwarts for further training?

” Edgar Morgenroth Says:
May 5th, 2010 at 3:04 pm

()…… another thread – I should have said the mother of all depressions.”

Unhhh? You agree with me? This will last decades? Who else agrees?

@Pat Donnelly – I don’t think Greece is going to keep on sinking for decades but that it will sink quite a bit over the next 3 years and then stay stuck unless they can fundamentally change everything about their economy.

@David in Dublin – I would not focus on the deficit figures for Ireland, as I wrote above there are all kinds of vagaries about what is in or out etc. What is important is that the exchequer returns are in line with forecasts so at last we are starting to get to grips with our massive problems. We are doing our bit, the rest is out of our control.

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