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. It is expected that the pace of recovery within the EU will continue to vary.
“The ongoing correction of intra-EU imbalances is set to continue over the forecast horizon. The adjustment is most marked in countries where deficits were very large at the onset of the crisis, to a large extent owed to a retrenchment in consumption. But also some structurally high current-account surpluses appear gradually to be coming down in view of stronger domestic demand and dynamic imports,” it said.
The Spring Forecast says the situation in European labour markets continues to be diverse, with the rate of unemployment ranging from four to five per cent in the Netherlands and Austria to 17 to 21 per cent in Spain and the Baltic States. Employment in the EU increased slightly in the last quarter of 2010, driven by improvements in all sectors, except industry and construction.
“Taking into account the usual lag between output and employment growth, employment is projected to improve modestly in both regions this year. The outlook for unemployment is for a decline of some 0.50 per cent over the forecast horizon in both regions.
However, despite brightening somewhat since the autumn, the outlook remains for a rather jobless recovery,” it says.
The report says that public finances begun to improve last year. On account of stronger growth and the end of the temporary stimulus measures, the general government deficit in the EU is projected to fall from about 6.5 per cent of GDP in 2010 to around 4.75 per cent in 2011 and 3.75 per cent in 2012, with a broadly similar pattern but at a somewhat lower level for the eurozone.
This is slightly more favourable than envisaged in the autumn. Spending cuts form the bulk of the adjustment in both regions. The debt ratio, in contrast, remains on an increasing path over the forecast horizon, reaching some 83 per cent of GDP in the EU and 88 per cent in the eurozone by 2012.