A year is a long time in economic forecasting

The European Commission today released its assessment of the Stability and Growth (optimistic words these days) Programmes of 17 EU member states.  The news was in 6 of them, where in addition to issuing “invitations” to the governments to make adjustments, it initiated excessive deficit procedures for them as all had deficits exceeding 3% of GDP in 2008 and couldn’t use the usual excuses for doing so.  The six are Ireland, Greece, Spain, France, Latvia, and Malta.  There’s a lot of data in the report and nice summaries of the overall growth and fiscal position in each country but a few stand out.  

 First, even on the updated forecasts from the Commission, Greece and Malta could avoid outright recession in 2009 and 2010.   At least one cheer for the policymakers in these countries.    Second, it’s already the assumed talking point for Ireland’s rerun of the Lisbon referendum: ”we could be Iceland without the EU”.  But are we Latvia?  It’s inside the EU already and the descriptions of its problems don’t sound a whole lot different from Ireland’s.  

Third, and again on Ireland, there is no country among the 6 with a worse deterioration in prospects between its end-2007 submissions to the Commission and those of end-2008.   A couple of numbers sum it up. 2010 GDP growth: end 2007, the government forecast 4.1%.  Now it says -0.9%.  And that’s after what will have been a disastrous 2009.  2010 general government balance:  End 2007, the government said -1% of GDP.  Now it says -9%.  And for government gross debt as a percent of GDP in 2010, it said 28.7% just over a year ago.  Now it says  62.3% — which the commission says is too optimistic!  Has there ever been an EU country where a debt projection jumped 34% of GDP in one year?

3 thoughts on “A year is a long time in economic forecasting

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  3. Oh man, I’m going to have to break out my copy of the Maastricht Treaty again, which I hoped to leave in mothballs for many years to come.

    Somewhere around Article 109 there should be the circumstances under which the criteria for joining the eurozone (themselves found in Art. 109(j)) can be relaxed.

    With demand taking the express elevator into the sub-basement, now is not the time to worry about excess deficits. Because there isn’t going to be growth, and unless the EU governments get with the programme, there may be a lot of stability lost as well.