The Global Context and the European Economy in 2004 and 2005
Dieter M. Hesse United Nations Economic Commission for Europe Zagreb, 15 October 2004
Main trends in the global economy in 2004
The global recovery appears to be well established But the growth momentum has weakened Higher oil prices are dampening economic growth Uneven strength of regional growth forces The euro area remains the major “soft spot” of the world economy Accommodative economic policies
January 2000 - September 2004 (Indices, 2000=100)
160 150 140 130 120 110 100 90 80 70 60
World Commodity Prices
00
01
02
03
20
20
20
20
Energy
Non-energy Products
Source: HWWA
20
04
What is the economic impact of higher oil prices?
A sustained increase by $10 per barrel reduces OECD output by 0.2-0.4 per cent after one year. Negative growth impact 2004: - 0.2 per cent 2005: - 0.5 per cent ? Net oil exporters benefit
A weakening recovery in the United
States?
A short or a prolonged slow down? Robust investment growth But weakening private consumption A sluggish labour market performance Reduced fiscal stimulus Current account deficit at record levels
A fragile recovery in the Euro area
Recovery is strongly dependent on export growth Domestic demand has remained weak Weak labour demand Germany: When will economic activity pick up strongly?
Robust growth in eastern Europe
Growth is now more broadly based Robust private consumption and fixed investment Exports stimulated by favourable external environment Major concerns: high fiscal deficits and current account deficits
The short-term economic outlook
Global recovery is set to continue in 2005 But at a more moderate rate United States: major engine of global growth Strong growth in Asian emerging markets Euro area: moderate recovery continues Eastern Europe and CIS: Dynamic economic growth
Economic growth in G7 economies, 20032005 (per cent)
Actual Forecasts 2003 2004 2005 FRANCE GERMANY ITALY UNITED KINGDOM CANADA USA JAPAN Total G-7 MEMO ITEM: EURO AREA
0.5 -0.1 0.4 2.2 2.0 3.0 2.5 2.1 0.5
2.5 1.8 1.2 3.3 2.9 4.3 4.3 3.6 1.8
2.3 1.6 1.8 2.6 3.3 3.5 1.8 2.8 2.0
Source: UNECE; Consensus Economics, September 2004.
Economic growth in major ECE regions, 2003-2005 (per cent)
Actual 2003 Euro area 0.5 EU-15 0.9 New EU-10 3.7 EU-25 1.0 South-east Europe 4.2 CIS 7.7. North America 2.9 Forecasts 2004 2005 1.8 2.0 2.0 2.2 4.5 4.5 2.4 2.3 5.9 4.8 7.6 6.0 4.2 3.5
Source: UNECE; Consensus Economics; September 2004.
Downside risks to the economic outlook
A continuing surge in oil prices Stronger than expected rise of inflationary pressures A “hard landing” in China Large global financial imbalances
Economic policy challenges in the developed market economies
Gradual withdrawal of monetary policy stimulus without endangering the recovery US monetary policy: tightening at a measured pace ECB: “Wait and see” Fiscal policy: focus on consolidation Euro area: More progress needed in structural reforms
Nominal short-term interest rates
January 2002-September 2004 (per cent per annum)
6 5 4 3 2 1 0
2002 2003 2004
Euro Area
United Kingdom
United States
Japan
Source : ECB; Federal Reserve Board
General government budget balances in major economies in 2004
(per cent of GDP) + : Surplus - : Deficit
Itlaly
2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 -5.0 -6.0 -7.0
Germany Euro Area Canada France
Source : National Statistics; IMF
United States
Japan
UK
General government budget balances in EU Member States : 2004
(per cent of GDP) + : Surplus - : Deficit
0 -1 -2 -3 -4 -5
Euro Area EU-15 New EU-10 EU-25
Source : European Commisssion