EC Autumn Forecast 2013

All the documents can be accessed from here.

The main figures for Ireland (“rebalancing on track”) are:

Among Euroarea countries six are expected to face a BoP current account deficit in 2014: Estonia, Greece, France, Cyprus, Latvia and Finland.  The largest deficit is expected to be in Estonia at 2.2% of GDP.  On the other side Germany, Luxembourg, the Netherlands and Slovenia will have a current account surplus of more than 6% of GDP.  The first three will have three-year averages greater than the 6% of GDP threshold set out in the Macroeconomic Imbalance Procedure.  In aggregate the euroarea is projected to have a current acount surplus of around 3% of GDP for the next two years.

The Spanish public deficit is forecast to increase to 6.5% of GDP in 2015 with France, Cyprus, Malta, Slovenia and Slovakia also projected to have deficits in 2015 over the 3% of GDP threshold for the Excessive Deficit Procedure.  In aggregate the Euroarea is expected to run a public deficit of around 2.5% of GDP for the next two years with public debt steady at around 95% of GDP.

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30 thoughts on “EC Autumn Forecast 2013”

  1. Just wondering…if we lower debt burden by 3.6% between 2013/14 this would imply a repayment of about 7.4b in 2014 and with interest of about 8b would total about 15.4b. Seems like a big number and would put a big hole in the cash reserves. Overwhelming ?

  2. @Seamus Coffey

    A bit underwhelming, no?

    Static debt is part of the all important “Stability kultur” Mr Coffey – as long as we can keep paying our dues to the core and their banks I think we can all be proud of being good Eurozonians. (Besides, with 0.7% inflation that 200 billion debt almost pays itself…)

  3. @Seamus

    That’s a relief. Long term interest only loan. Hope the rates don’t go up. So we should have a decent stash of cash at the end of 2014.

  4. If the EZ is forecast to have a trade surplus of ~3% this year (or is it next year?), how does this surplus manifest itself? Who are the beneficiaries? Is it a case of more cake for those already with plenty cake? Why has this surplus to date made no overall impact on EZ employment?

  5. So what changes in 2015 to bring the growth up to a rip roaring 2.5% ? Is it “because that’s why” or are there explainable factors behind it ?

  6. The Ministry of Information! Looks like the oasis is again just 2 years away. Even then, real growth estimate is only 1.3%.

    Calculating an Irish growth estimate in light of 5 years of sustained contractionary fiscal policy, an unstable outlook for Eurozone and world economy can’t be easy.

    How can you contract fiscal policy to the tune of €2.5bn and arrive at a positive growth expectation for the following year? If they invested €2.5bn, they’d be very quick to refer to the multiplier to justify the number fudging…just like they do where job creation is concerned. But the multiplier is not to be discussed where cuts are concerned.

    It’s a miracle the economy has been flatlining – surely euro weakness fueling exports for a while. You’d expect the previous “budgetary adjustments” (shocks) are still working their way through the economy, even if we had no budget this year.

  7. Seafood,
    UK economic growth is accelerating. Much as the Grauniad readers hate to admit it, Osborne is on the right course.

    I still expect a major enquiry into the advice of pension consultants to de-risk funds in the last few years by buying bunds. Much of this will prove to be re risking by buying over valued assets.

  8. Tull

    Why do you keep on bringing up the subject of pension derisking? I had as much to do with it as you had managing the Fermanagh footballers from 2010 to 2012. They were atrocious. Why didn’t you put big Maguire in full forward?

    Don’t pension funds have trustees? Isn’t it their job to decide on strategy? Perhaps grumpy can explain it to you.

  9. @Tull

    Dumb money is part of the financial ecology. If the strong can’t shaft the uninformed we can’t reach the bottom that allows the animal spirits to regroup.
    I think that’s what happened in the UK innit. Obviously things are a bit more complicated in Ireland.
    The trick is not to be caught with overvalued assets the next time panic calls.

  10. http://www.ft.com/intl/cms/s/0/5ed4f06a-47a4-11e3-b1c4-00144feabdc0.html

    “Although eurozone inflation has been declining since the middle of the year, the 0.7 per cent reading for October was much lower than expected and has sparked widespread calls for the ECB to do more to lift demand. The central bank targets inflation of just under 2 per cent but inflation has not been above that level since January. ”

    Perhaps the geniuses at the ECB can figure out the link between unemployment and falling inflation. Would economic growth have anything to do with more people having jobs ?

  11. Mario Draghi is a courageous man.

    http://www.nytimes.com/2013/11/08/business/international/european-central-bank-cuts-main-rate.html?hpw&rref=business&_r=0

    Can you believe the German response to a 0.25 ECB rate.

    Some excerpts from the article.

    Pierre Moscovici, the French finance minister, said in a Twitter message that the rate cut provided “welcome support for the ongoing recovery in the euro zone by limiting the risk of deflation.”

    But a German banking group expressed dismay. “Unprecedented low interest rates substantially devalue savings in Germany and the euro area and increase the danger of bubbles,” the Association of German Public Banks said in a statement.

    The view in Germany and among some economists is that there is no threat of deflation. This group sees slowing inflation merely as a sign that wages are falling in countries like Spain and Greece, where labor costs had become too high for companies to compete in the international marketplace.

    Given those arguments against a rate cut now, Mr. Draghi showed on Thursday that he was willing to overrule German objections.

  12. @ All

    FYI (h/t Eurointelligence)

    http://www.imf.org/external/np/res/seminars/2013/arc/pdf/hoshi.pdf

    The essential elements for a solution to Europe’s crisis, in the view of the authors, are (i) more rapid bank recapitalisation and (ii) structural reform. The lack of a mutually agreed backstop for the former, because of German objections, and the failure of France, Italy and Spain to implement the latter are the two main missing political ingredients. Supplying them in some form of a political grand bargain – before the economic situation takes a turn for the worse – is the crux of the problem. Draghi seems to be the only personality capable of making this evident; and being, luckily for Europe, in a position to do something about it.

  13. @ DOCM

    “structural reform”

    What type? Cameron’s where workers are stripped of benefits or Martin Wolf’s where Germany ramps up spending to offset deflation in the Piggy states

  14. @ seafóid

    A I understand it, structural reform refers to the correction of any elements in an economy which are a drag on productivity. These differ from country to country. The less there are, the more efficient the economy. National politicians are responsible, both legally and in terms of democratic legitimacy, for bringing this about.

    In the case of Ireland, while there has been undeniable progress on many fronts, there are still enormous gaps due mainly to the failure to face up to the radical nature of the collapse. The evidence of this is the equanimity with which those lucky enough to have employment or other income can witness the loss of an entire generation to emigration.

    For me, the interest of the IMF paper is that it puts its finger on what constitutes the nub of the continuing crisis and, indeed, the helps clarify the fact that the two issues raised are what the politicians and institutions have been grappling with for the past five years.

  15. @ All

    From the IMF paper. Page 25 (web), 22 (paper).

    “There are three common explanations for persistent problems with the capitalization of the euro area banks. First, there has never been a public backstop made available for banks that fail to attract private funding. At the time of the 2009 U.S. stress tests some interpreted the key to their success as having eliminated asymmetric information about asset quality. But another interpretation was that the mandated capital raise combined with the public backstop was the critical ingredient. The fact that the European banks revealed more balance sheet information than the U.S. banks but have still not convinced the market of their health suggests that the latter lesson is the right one to draw.

    The absence of a backstop in turn relates to several other factors. Perhaps the most important consideration is the reluctance of the Germany and other relatively strong countries to be forced into a bailout of banks in weaker countries. But prescriptions of austerity have not been popular, either. Thus, the governments in France, Spain, and Italy that were in charge during the start of the crisis were voted out. Remarkably Mrs. Merkel’s party gained popularity in the most recent election. Until a recapitalization occurs, and we see the extent to which state funds are committed, it is hard to say whether the kind of concern over public backlash, as we saw in Japan, has prevented the backstop from being offered. Put differently, it is too early to tell whether the current policies advocated by Germany purely reflect self-interest or represent the honest view about the best way to proceed.”

    The ECB deal with the issue in rather ambiguous terms (page 2);

    “Moreover, a temporary, fiscally neutral, public backstop should be available, which could be provided in the form of a credit line to the SBRF.”

    The issues of the appropriate legal base and the role of the Commission are dealt with in a similar manner.

  16. The real danger for Europe: banks unwilling/unable to lend to the private sector. Credit growth is stagnant. This is exactly what happened in Japan because the Government delayed the necessary and painful clean-up of bank balance sheets. The reverse is true in the U.S., where the problem was addressed quickly, thus largely explaining the gap in economic growth between Europe and America.

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