What Europe’s Economic Future Looks Like?
A look at the latest geopolitical developments and their effects at EU level.
Corina Cristea, 10.10.2014, 13:24
The month of September 2014 registered its lowest with regard to people’s trust in the economy of the Eurozone and of the EU in general, and inflation estimates among households and producers have kept dropping. Data published by the European Commission show that the Economic Sentiment Indicator, designed to show how a group feels about the market, business environment or other factors, dropped down to 99.9 points in the Eurozone in September, from 100.6 points registered in August, with only services and the construction sector seeing a slight improvement of the same indicator. As for Romania, estimates regarding the business environment are flat too, and specialists say that this situation will lead to a correction of the optimistic prospects envisaged for the third quarter of this year. Four indicators are under scrutiny: the processing industry, services, retail trade and construction. Economic analyst Aurelian Dochia says that company managers have changed their view of the situation this year, after a number of EU countries have had unconvincing developments as compared to the estimates made early this year.
“In many countries, these indicators are used to correct growth estimates for the coming period. Generally speaking, in Europe, although the situation looked brighter at the beginning of the year, optimism has diminished by the month, and even in countries such as Germany, which did rather well during the crisis, these indicators, coming from companies’ managers, have stagnated, and have even diminished, which obviously jeopardizes economic growth for both the Eurozone and the EU as a whole. In Romania too there is a correlation between what happens in Europe and national indicators, because it is obvious that many of the Romanian companies working for export are influenced by what is happening in Europe.”
nalyst Aurelian Dochia believes that, with regard to economic performance, Romania is unlikely to register any growth by the end of this year. After the first two quarters affected by the so called technical recession, we will probably see a stagnating one, so all in all we will be able to speak about a 2% growth for 2014, maybe even less than that. IMF’s estimates are a little bit more optimistic, but they have dropped too. The international financial institution has lowered Romania’s GDP growth estimate from 2.8%, as anticipated in June, to 2.4%. According to the IMF’s winter forecast published this week, economic growth for 2015 will stay at 2.5% of the GDP. A World Economic Outlook Report reflects the same dropping figures for this year and for 2015, also stressing the risk of stagnation in the rich countries, as well as of escalated geopolitical tensions in Ukraine and the Middle East.
The IMF has also lowered economic growth estimates for the Eurozone, due to concerns over deflation and high unemployment rates. The development of world economy is behind the estimated pace, IMF General Director Christine Lagarde has warned, the main causes of this mediocre evolution being the issues confronting the Eurozone and Japan. The situation is different from one country to another, but world economies could be affected in a negative way by geopolitical threats turning into reality, Christine Lagarde also said.
“If the crisis in Ukraine gets any worse, in every respect that will have a negative impact in the region and it could also have a negative influence on the price of the raw materials or even on international trade. Other notable risk factors have to do with the situation in the Middle East and the Ebola outbreak. If the spread of the virus is not contained, all those who are now speaking about the outbreak but do not do anything about it, are highly likely to find themselves in a very difficult situation”, the IMF official has warned. Against the backdrop of a low inflation rate and high unemployment, a decrease in consumption and investment rate leads up to economic growth building up at a slower pace, the IMF official also warned.
As far as Romania is concerned, the country does not run the risk of inflation, neither is it certain that inflation will continue its downward trend for a longer period of time, Romania’s Central Bank governor Mugur Isarescu said in Bucharest. Isarescu went on to say the embargo Russia imposed on foodstuffs triggered lower floating prices caused by the fact that cheap foodstuffs from the European Union but also from the Republic of Moldova were available on the Russian market. Furthermore, complex developments at European level are also likely to determine a drop in inflation. Attending a conference on the financial market, Mugur Isarescu underscored that the stability of prices, especially the inflation control, makes a necessary yet not sufficient prerequisite for financial stability. In another development, the General Association of Economists from Romania shares the opinion that Bucharest has been going through a period which is favourable to economic re-launch and should also stick to the trend of reducing the dependency on foreign financing resources.
