France: With a GDP of $2.7 trillion, France is the world’s fifth-largest economy. Real GDP increased by 1.5 per cent in 2010 after falling 2.7 per cent in 2009 due to the economic crisis. The government expects GDP growth of one per cent for 2012. Meanwhile, the OECD has downgraded its forecast for French GDP growth to 0.3 per cent in 2012.
The International Monetary Fund (IMF) is likely to revise its forecast for French GDP growth of 1.4 per cent in 2012 while the European Commission had earlier reduced its predictions for France, to 0.2 per cent and 0.4 per cent respectively in 2012 and 2013. France’s economy unexpectedly grew in the third quarter as households splashed out on clothing and trade data turned positive, though high unemployment and rising taxes make for a gloomy outlook. Preliminary data showing the economy expanded 0.2 per cent on a seasonally adjusted quarterly basis confounded fears that France might slip into recession by year-end.
According to the French Finance Minister, the country is expected to see a weak economic growth in 2013, but will start rebounding in 2014. Though 2013 will be a hard year for the country; nevertheless, reforms carried out by the government will manage to put economic growth back on track. The government plans to stimulate the economy through a $49 billion package of measures expected to boost GDP by 0.8 per cent in 2013 from a projected 0.3 per cent in 2012. Moreover, France plans to reduce its budget gap from 4.5 per cent set for the current year to three-per cent next year. However, in order to achieve these targets, France has to enhance competitiveness and investment, boost continued consumption, while financial uncertainty in Europe must be removed.
The EU’s executive arm saw growth in the eurozone’s second-largest economy at just 0.4 per cent next year — half the 0.8 per cent assumed in the 2013 budget and held back largely by tax rises that will hurt consumer spending. France stands to miss a goal of trimming its public deficit to the EU’s target ceiling next year. According to the Commission, France’s budget deficit would fall to 3.5 per cent of gross domestic product in 2013 from 4.5 per cent this year, still above the three-per cent EU ceiling that President has pledged to meet, and would only drop below it in 2014. After three quarters of stagnating GDP and historically low levels of corporate profitability, prospects for an imminent recovery have waned. Specific downward risks relating to the French economy weigh on the potential recovery.
There’s a strong risk that in 2013 and 2014, France will fall behind economies such as Spain, Italy, and Britain. The government predicts 0.3 per cent GDP growth this year and 0.8 per cent growth in 2013, and hopes that 30 billion euros of budget savings — comprising spending cuts of 10 billion and tax rises of 20 billion — will allow it to meet its European commitments on deficit reduction. The risk, economists say, is that it cannot do both. The GDP stopped growing in the last quarter of 2011 and stayed at zero in the first and second quarters, according to the most recent official estimates available.
France could be the next European country to face economic stumbling blocks with up to 10 billion euros needed to be cut this year and another 33 billion by 2013 in order to meet European deficit targets. France will have to find $7.6-12.6 billion this year and a massive 33 billion in 2013 to meet its European deficit targets, or risk unnerving financial markets. The government plans tax rises on the wealthy and on companies to adjust the 2012 budget, but unpopular welfare and civil service job cuts are likely next year. The main obstacle to Finance Minister’s pledge to honour France’s European Union deficit targets of 4.5 per cent of GDP this year and three- per cent in 2013 was a revenue shortfall due to over optimistic assumptions on economic growth.
The crunch year for public finances would come in 2013 when the government must make the biggest step in deficit reduction in the face of weak growth, a persistent eurozone crisis and rising domestic anger over high unemployment. Despite France’s success in cutting the deficit last year, to 5.2 per cent of GDP from 7.1 per cent in 2010, its finances remain worse than the eurozone average of a 3.8 per cent deficit. Economists cautioned that with unemployment running at a 13-year high, $38 billion in additional taxes on households and businesses set to kick in next year, the bounce in the eurozone’s second-biggest economy was unlikely to be maintained. According to the EU Commission’s prediction, French public sector debt will rise to more than 90 per cent of GDP next year — a critical threshold for the long-term sustainability of debt.
The German economic think tank has, in its latest report, nearly halved its forecast for 2013 growth in Europe’s largest economy to 0.7 per cent from its June estimate of 1.3 per cent growth as the eurozone’s debt crisis had hit the economy later than expected, delaying the recovery. The institute reports that the economy would likely shrink 0.3 per cent in the last quarter of 2012. It, however, expects that domestic demand would help it pick up next year, growing modestly by 0.2 per cent in the first quarter of 2014. The institute is of the view that if the euro crisis does not escalate and remains in line with the baseline scenario, domestic upward forces and rising demand for German export goods from outside the EU should boost the economy.
The Bundesbank last week slashed its own to a meagre 2013 expansion of 0.4 per cent from a previous estimate of 1.6 per cent.
The European Commission expected the German economy to slow further in the second half of 2012 due to weaker export markets and investment activity. German GDP growth would slow to 0.8 per cent in 2012, down from three per cent last year. It would only manage 0.8 per cent growth again next year, according to the Commission’s forecasts. Overall economic activity is weak and it is expected to remain weak in the near term. For the past three years Germany has managed to remain largely insulated from the economic troubles that have hit hard at the eurozone’s periphery. But the latest figures show that even Germany is not completely immune to the economic slowdown. If exports suffer, it is very unlikely that German shoppers will come to the rescue.
Latest data showed Germany’s trade surplus narrowing to its lowest level in over half a year in the face of strongly rising imports and weakening demand from its recession-hit European partners. The seasonally-adjusted trade surplus shrank to 15.2 billion euros in October from 16.9 billion in September. It was the lowest level since March, and well below a consensus forecast for it to narrow to 16.1 billion euros. Unemployment has also been rising, and the Bundesbank now expects the jobless rate to hit 7.2 per cent in 2013, up from 6.8 per cent this year. Inflation meanwhile would ease to 1.6 per cent from two-per cent in 2012.
The budget committee of the parliament has come up with its final draft of the 2013 federal budget. The approved draft reveals 17.1 billion euros ($21.8 billion) of new debt next year for a total of 302 billion euros in spending. The amount of new debt is 1.7 billion euros less than what had been proposed by finance minister. The total budget is 200 million euros less. The new budget deficit ceiling proposed in the draft budget is no more than 0.35 per cent of GDP. The federal government will reach the target faster than planned thanks to strong economic growth, lower unemployment and rising tax revenues.
According to the Belgian central bank, Belgium’s economy will stagnate in 2013 as factory shutdowns hit confidence. The bank sees output falling 0.2 per cent this year and expects no growth in 2013. Earlier in June, the bank had forecast 1.4 per cent growth next year. Belgium has an export-orientated economy. Low growth in neighbouring countries would also hold back GDP. The Belgian economy, the sixth largest in the eurozone, grew by 0.3 per cent in the first three months of this year, propelled by exports. However, it shrank by 0.5 per cent in the second quarter and economic output was flat in the third. The Federal Plan Bureau, whose forecasts the government typically uses to draft budgets, has factored in a contraction of 0.1 per cent this year and expansion of 0.7 per cent in 2013.
Belgium’s central bank has slashed growth projections for the domestic economy, citing deteriorating business and consumer confidence and anaemic external demand. Releasing updated projections, the Belgian National Bank now sees the economy contracting by 0.2 per cent this year and stagnating in 2013, revising down its June projections for growth of 0.6 per cent and 1.4 per cent, respectively. Foreign trade should contribute positively to GDP this year and next due mainly to weak imports rather than strong export demand, the central bank said. Unemployment is expected to continue rising, hitting 7.4 per cent in 2012 and 8.1 per cent in 2013 as businesses hold back on investment and consumers increase savings rather than spending.
Belgium’s economy will stagnate this year and return to growth in 2013. The IMF raised its 2012 outlook from last month’s forecast of a 0.1 per cent contraction. The Washington-based lender maintained its projection of 0.8 per cent growth in 2013.
Belgium’s inflation rate will fall to 2.4 per cent this year and 1.9 per cent in 2013, according to the IMF. The country will post a current-account deficit equivalent to 0.3 per cent of GDP in 2012 and a surplus of 0.4 per cent of GDP next year, while the unemployment rate will rise to eight per cent and 8.3 per cent, respectively. The European Commission most recently forecast 0.7 per cent growth. The government on the other hand projects that domestic inflation, which peaked at four per cent in July 2011, slowed to 2.6 per cent in October and is expected to continue slowing, along with oil prices, to average 2.6 per cent in 2012 and 1.6 per cent in 2013.
Belgium’s government agreed extra savings to rein in its budget deficit in 2013 and take measures including a cap on wage hikes to reverse its loss of competitiveness. Prime Minister’s six-party coalition announced 3.4 billion euros ($4.4 billion) of tax hikes and savings to cut the deficit to 2.15 per cent of GDP from 2.8 per cent this year. Belgium aims for a balanced budget in 2015.
The package comes on top of some 14.5 billion euros of measures this year, including a limit on early retirement, higher tax on corporate cars and a freeze of some government spending. Economists believe that the measures were broadly growth-friendly.
However, the 0.7 per cent economic growth assumption for next year was over-optimistic, with stagnation more likely.
Belgium was the eurozone’s fifth most indebted state last year, and its debt pile this year is seen rising to 99 per cent of GDP. The central bank expects Belgium’s national debt will rise to 100.6 per cent of total output in 2012, from 97.8 per cent in 2011, and sees the Belgian budget deficit at 2.8 per cent this year. The Belgian government, which took office a year ago, has pledged to cut the deficit to below three per cent of GDP this year and to 2.15 per cent in 2013, helped by almost 18bn euros in savings. Unlike European neighbours, including Germany, Belgium had not resorted to cuts in family allowances, pensions or healthcare provision or a rise in value-added tax. The central bank expects the government to succeed in bringing its deficit down to 2.8
per cent of GDP this year, below the EU’s three per cent ceiling.