c.2013 New York Times News Service

c.2013 New York Times News Service

BRUSSELS — A fragile recovery across the European Union is not expected to bear fruit until next year, while unemployment is likely to remain high in countries like Greece and Spain, and even rise in France, the head of economic policy for the bloc warned Tuesday.

Olli Rehn, the Union’s commissioner for economics and monetary affairs, said economic output this year among the 17 countries that have the euro as their currency was expected to fall 0.4 percent and to flatline in the 28 countries of the EU, partly because of slowing demand from emerging markets, before turning positive in 2014.

The figures also show rising joblessness in France, which could further erode faith among European leaders, including in Germany, in the ability of President François Hollande to overhaul his economy and steer the second largest economy in the eurozone to a robust recovery.

“The forecasts are particularly damning for France and will significantly increase pressure on Hollande at a time the president is already vulnerable,” said Mujtaba Rahman, the director for Europe of the Eurasia Group. That “will reinforce a growing strand of opinion in Berlin that France is the weakest link, and that political ownership of structural reforms is the missing piece of the puzzle when it comes to broader eurozone stabilization,” Rahman said.

Rehn’s forecast revised French growth down to 0.9 percent in 2014 from 1.1 percent earlier in the spring, while growth in Spain for 2014 was revised down to 0.5 percent from 0.9 percent. Both countries are also on course to miss their deficit targets. France was heading for a budget deficit of 4.1 percent this year, above its target of 3.9 percent, while Spain was on track for a deficit of 6.8 percent this year compared to its target of 6.5 percent.

“The needs for economic reforms are of particular urgency and of particularly importance” in France and Spain, Rehn told a news conference in Brussels to present his so-called autumn economic forecasts. He said that he was “counting on these countries to undertake serious and effective economic reforms to boost competitiveness, growth and employment” after already giving them both an extra two years to meet deficit targets.

Overall, Rehn said economic growth in 2014 should hit 1.1 percent in the euro area — a revision downwards of his forecasts of 1.2 percent in May and 1.4 percent in February — and 1.4 percent across the Union. But growth should continue to strengthen in 2015, to 1.7 percent in the euro area and 1.9 percent in the Union.

“There are increasing signs that the European economy has reached a turning point,” Rehn said. “But it is too early to declare victory,” he said, adding that a key issue was that “unemployment remains at unacceptably high levels.”

He warned that employment was unlikely to recover as fast, something that could mean years of further hardship for the millions of Europeans who remain out of work or are looking for their first job.

According to the forecasts, unemployment in the euro area will rise to 12.2 percent this year and remain at that level through 2014, compared with a rate of 11.4 percent in 2012. Across the Union, unemployment was expected to rise to 11.1 percent in 2013, compared with 10.5 percent last year, before easing slightly to 11 percent in 2014.

In Greece, the average unemployment rate for 2013 was expected to hit 27 percent, compared with 24.3 percent in 2012. In Spain, the figures showed unemployment rising to 26.6 percent this year from 25 percent last year. The forecasts showed unemployment remaining at around a quarter of the workforce in both countries in 2015.

The unemployment forecast for France is also likely to prompt concerns because it showed a steady rise over the next three years to 11.3 percent by 2015, from a level of 10.2 percent last year. In Italy, unemployment was expected to reach 12.2 percent this year, then rise again to 12.4 percent in 2014 and ease only slightly, to 12.1 percent, in 2015.

Rehn offers his forecasts three times a year, and to some extent they have become an exercise in justifying the kind of austerity medicine he has prescribed since the accumulation of enormous debt in countries like Greece, Portugal and Ireland that threatened the existence of the euro. The debt load has crippled other economies in the bloc and contributed to problems like chronic joblessness.

On Tuesday, Rehn said that years of painful reforms and budgetary rigor made it more likely that domestic demand would gradually become the main engine for growth in Europe.

“The fiscal consolidation and structural reforms undertaken in Europe have created the basis for recovery” and “we must continue working to modernize the European economy,” he said.

The economies of Germany and France, the largest in the euro area, were expected to post, at best, anemic growth of 0.5 percent and 0.2 percent respectively this year, while the economies of Italy and Spain, the third and fourth largest in the euro area, were expected to shrink by 1.8 percent and 1.3 percent respectively.

Two of the largest economies outside the eurozone, Britain and Sweden, were expected to post more robust growth of 1.3 percent and 1.1 percent this year.


Rehn has also recently gained powers to monitor national budgets and assess the performance of individual European economies. He will use the forecasts on Tuesday as partial assessments of whether countries like France and Italy will need to make more efforts at reform and fiscal tightening, and whether Germany should do more to ease a trade surplus that international economic officials and the United States have criticized as too high.

The forecasts could increase the chances that the European Central Bank will take action to stimulate the economy when it meets on Thursday. Last week, official figures showed inflation falling to an annual rate of just 0.7 percent, well below the ECB’s official target of about 2 percent. Rehn’s forecasts could bolster those members of the ECB’s governing council who believe that action is needed to prevent the eurozone from becoming stuck in the same kind of economic stagnation that has long afflicted Japan.A growing number of economists are forecasting ECB action on Thursday, either in the form of a cut in official interest rates or stepped-up lending to eurozone banks, or both. Other ECB watchers expect the central bank to hold off until December, after its in-house economists have updated their own forecasts.

With the ECB’s benchmark interest rate already at a record low of 0.5 percent, “another cut now would leave precious little room to maneuver,” Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., said in a note to clients on Tuesday.

Rahman, the Eurasia Group director, said Rehn’s forecasts “will be used by both ECB doves and hawks alike.” But because “the numbers are far from conclusive, they are likely to reinforce as opposed to unlock ECB gridlock,” he said.

European corporations remain cautious about the prospects for recovery in Europe. “If we have growth in Europe it will be at a very low level,” Norbert Reithofer, chief executive of the German automaker BMW, said during a conference call with reporters Tuesday. He said he expected growth to pick up during the second half of next year.