By David Thomas and Bengt Rostrom Gothenburg, June 15 (BridgeNews) - EU Economic and Monetary Affairs Commissioner Pedro Solbes admitted Friday that the EU's Spring economic forecasts, published just two months ago, may already be out of date. He told reporters following a meeting of EU finance ministers here that the Commission forecast of 2.8% growth in the euro zone this year was "on the high side".
The slowdown in growth in the euro zone was now agreed to be "much stronger than expected," Solbes said, summing up the ministers' views of the economic situation. Solbes also noted that the market consensus was closer to 2.5% growth in the zone this year. He also noted that some analysts were more pessimistic and believed growth might be no higher than 2%. While Solbes stopped short of saying he would officially revise down the Commission's growth forecast this winter, the comments seemed to be aimed at toning down growth expectations.
The commissioner suggested that the US slowdown, higher oil prices were the key factors undermining growth expectations, although he said that growth would still be "robust" this year.
Solbes also issued a warning on inflation, saying that the high inflation in some member states was a "point of preoccupation" for the EU. He also signaled that May inflation data for the zone--due out Monday--was likely to be higher than April's already high 2.9%. However, inflation would start to fall in the second semester of this year and would be within the European Central Bank's below 2% inflation benchmark by the start of 2002.
Solbes also touched on the issue of whether states with still high budget deficits could be allowed to use so-called "automatic stabilizers" to blunt the impact of slower-than-expected growth. He said that the ministers had agreed that there should be "some margin of maneuver" to allow the stabilizers to work where growth was lower than anticipated: In some cases there is a margin of maneuver for the utilization of the automatic stabilizers". However, such countries had to be "close to balance in terms of the cyclically adjusted balance and should not be used in countries where rates of debt are still high."
When asked to specify which countries he had in mind, Solbes said he had two lists--one with Portugal, Italy, France and Germany and the other listing Belgium, Italy and Greece. The first being the list of countries with deficits still too far from balance and the second of countries with public debt levels exceeding 100% of gross domestic product.