Lisbon Council
Euro area set to grow 0.7 percent in 2009
Europe is well-positioned to recover in 2009 / Strong policy response is needed to overcome crisis / Germany and France set to grow faster in 2009 than Spain, United Kingdom and Italy
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Allianz SE, one of Europe's leading financial service providers, and the Lisbon Council, a Brussels-based think tank, today launch the autumn update of The European Growth and Jobs Monitor, their bi-annual performance ranking, based on criteria derived from the so-called "Lisbon Agenda". This year, the ranking includes an assessment of Europe's economic performance in the wake of the financial crisis, along with forecasts for 2009 and key recommendations for policymakers.
Among the study's main findings:
- If the policy response to the crisis continues to be robust, we believe GDP in the Euro area could grow 0.7 percent in 2009, a full half-percentage point higher than the IMF's recent gloomy prediction.
- The Lisbon Indicator, which measures progress on Europe's growth and jobs agenda, fell to 0.9 points in the second quarter of this year, down from its high of 1.2 points in the second quarter of 2007. The decline is mostly due to slower economic growth and a decline in labor productivity. On the positive side, the quality of Europe's workforce continues to improve, while the level of growth-oriented investment remains steady.
- Germany and France should grow 0.7 percent in 2009, roughly the Euro area average; Italy and the United Kingdom are set to grow 0.5 percent, and Spain at 0.4 percent. However, the convergence of growth rates in the main EMU economies masks large structural differences between them, which will be more noticeable when growth picks up again.
Key recommendations:
- With inflation set to decline, the ECB should consider further interest rate cuts. Lowering interest rates to 3 percent in the next six months seems reasonable.
- Countries without large fiscal deficits (e.g. Germany, Netherlands, Austria, Finland and Sweden) should consider stimulating their economies by bringing forward planned measures for tax and/or social security reform or by providing investment incentives.
- Europe needs to work with others on a revised global regulatory framework for the banking sector and financial markets. Capital requirements need to be revamped, transparency enhanced and off-balance sheet vehicles abolished.
- Europe needs to address the fragmentation of its financial and banking markets (mortgage markets, insurance markets). The financial market crisis provides the opportunity to tackle this lack of integration.
Says Michael Heise, chief economist of Allianz SE and principal author of the study: "In the midst of this crisis, it is important to realize that Europe has many underlying strengths, such as a relatively competitive corporate sector, only moderate excesses on financial markets and high rates of savings. If governments act forcefully to combat the global financial crisis, I believe that Europe is well positioned for a recovery in 2009."
About the Lisbon Council
The Lisbon Council is a Brussels-based think tank and policy network, committed to making a positive contribution by engaging political leaders, and the public at large, in a constructive exchange about Europe's economic and social future. Incorporated in Belgium as an independent, non-profit and non-partisan association, the Lisbon Council is among Europe's most authoritative and thoughtful voices on economic reform and social renewal.
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