Commission Vice-President Rehn exaggerates Eurozone’s growth prospects

Press conference by Olli Rehn, Vice-President of the European Commission, on the autumn economic forecasts for 2013-2015. (EC Audiovisual Services, 5/6/2013).

Yesterday the European Commission published its autumn 2013 economic forecast for the EU and the Eurozone. Apart from downgrading the growth prospects in relation to last spring projections, Ollie Rehn, Commission vice-President, while presenting the package, used slightly different estimates than the ones contained in the full report prepared by the Directorate-General for Economic and Financial Affairs (DG ECFIN). Rehn, in rounding up the numbers, tried to ameliorate Eurozone’s horizons ‘playing’ with percentages.

Starting from the improvement of prospects, the full DG ECFIN report says, “GDP in annual terms is expected to remain unchanged in the EU and contract by ½% in the euro area in 2013… Next year, economic activity is projected to expand by 1½% in the EU and 1% in the euro area before accelerating to 2% and 1¾%, respectively”. In contrast, Rehn while presenting the forecasts said that, “GDP in annual terms is expected to remain unchanged in the EU and contract by 0.4% in the euro area in 2013… In 2014, economic activity is projected to expand by 1.4% in the EU as a whole and 1.1% in the euro area. We expect a further acceleration in 2015 to 1.9% in the EU and 1.7% in the euro area. Then he added, “This confirms our projection from May this year”.

Multiple blunders

In just one sentence, the Finnish Commissioner made many blunders. Let’s count them. First and more importantly, he didn’t inform his audience that in the spring forecast, presented also by him last April, the projection for next year’s growth was 1.2%. Yesterday, he said that this figure had to be contracted to 1.1%, while the full DG ECFIN report predicts just 1% more GDP for 2014.

This criticism is not a scholastic approach to numbers. The reason is very simply that 2 decimals of a percentage unit of Eurozone’s GDP correspond roughly to €19 billion. Eurozone’s annual GDP is estimated at €9.5 trillion. To put things right, last spring the Commission predicted 1.2% growth for 2014, now Rehn cuts it to 1.1% and the just published full autumn report of DG ECFIN authentically undercuts it further, to only 1%.

Discrepancies between Rehn and DG ECFIN are noticeable for this year’s prospects too. While Rehn said that Eurozone’s GDP will contract by 0.4% this year, the authentic forecast of DG ECFIN predicts ½% retreat in 2013. Actually, in this case the Commissioner didn’t go for a rounding of numbers. On the contrary he chooses to undercut a perfectly rounded half percentage unit. Again this criticism is not a miser presentation of decimals. Not to forget that each decimal of a GDP percentage unit roughly represents €9.5 billion. This should be enough for Rehn to make him pay attention to numbers.

Facts is the enemy

Unfortunately, it seems that Rehn did not mistakenly use a different version of numbers. He invariably tried to sweeten the prospects. On both occasions, predicting Eurozone’s GDP for this year and next year, he chose to promote a better perspective than the DG ECFIN. He either doesn’t agree with the ability of his services for accurate predictions, or he is so negligent that he doesn’t care about some euro billions.

In any case, the truth is that this autumn’s forecasts are worse than last spring’s. Obviously the austere fiscal and incomes policies followed invariably by over-indebted and surplus countries alike are still taking their toll. On top of that, the widely self-imposed deleverage in the entire banking industry and the households keeps on negatively affecting the growth prospects of Eurozone. As for the widely advertised Eurozone’s passage from recession to growth as from the second quarter of this year, DG ECFIN predicts a mere 0.5% increase of GDP during the second half of 2013.

It seems that Rehn by choosing ‘slightly’ different numbers than the DG ECFIN, in reference to growth predictions, wanted yesterday to communicate at least one tangible positive perspective for Eurozone. Unfortunately, prospects are negative if not dangerously frustrating on all the other major macroeconomic variables, like unemployment and consumer price developments. According to this EU Commissioner “growth will pick up only gradually and will translate into jobs only with a lag”. Later on he also accepted that the “most recent data indicate that we will likely see an even lower rate of inflation in the near term”.

Unemployment is at the historical high level of 12.2% and inflation at the unseen before low percentage of 0.7%. Sadly enough, those two crucial variables are set to continue their course towards the wrong direction. Unemployment will probably continue to rise and inflation to surely slide towards zero. These quite negative prospects, together with information about fast falling industrial goods’ prices in Eurozone, paint a grey horizon. In conclusion, it is questionable if Eurozone will be able to justify the predictions for 0.5% growth in the second half of this year and the 1% rise of GDP during 2014.

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