Contact:
Rosemary Radcliffe, Economic Adviser to PricewaterhouseCoopers
Tel. +44 20 7213 2963
Giedrius Čiupaila, Head of Marketing and Communications, PricewaterhouseCoopers, tel. +370 5 239 2300
2 June 2004
Economic growth in Central and East European countries is expected to exceed the European Union average as the Euroland economy is projected to grow by only around 1.5% in 2004, according to a new report by economists at PricewaterhouseCoopers.
Other highlights of the latest European Economic Outlook include:
- German and Italian growth to recover gradually;
- France should achieve 2% growth in 2004;
- Spain likely to remain the best performer of the larger Euroland economies; and
- the Athens Olympics should help make Greece the top Euroland performer in 2004, but the Greek economy could slow significantly in 2005.
The main scenario set out in the PricewaterhouseCoopers report is for Euroland growth to remain sluggish at around 1.5% in 2004, before picking up gradually to around 2.25% on average in 2005 (see Table in notes below for details).
But the report argues that risks to growth are currently still weighted to the downside, given that the Euroland economic recovery remains fragile and will not be helped by the continued relative strength of the euro and the recent rise in oil and other commodity prices.
In its main scenario, PricewaterhouseCoopers project that German growth should pick up gradually to an average of around 1.25% in 2004 and 2% in 2005. Italy is also expected to grow relatively slowly at around 1% in 2004 and 2% in 2005, but French growth is projected to be a little higher at around 2% in 2004 and 2.5% in 2005. Spain is expected to continue to be clearly the best performer of the larger Euroland economies with growth of around 3% in 2004 and around 3.25% in 2005.
The fastest growing Euroland economy in 2004 is expected to be Greece (4.25%), where growth will be boosted by the Athens Olympics. Based on an analysis of the economic impact of past Olympic Games, however, the report does see a significant risk that the Greek economy could decelerate quite rapidly in 2005 once the boost from the Olympics is over. A key factor here will be the need to correct the rising Greek budget deficit, which is expected to exceed 3% of GDP in 2004 for the second successive year.
In Euroland as a whole, budget deficits are expected to average around 2.75% of GDP in 2004, similar to 2003, and to fall only slightly during 2005. In the main scenario set out in the report, which assumes no significant new fiscal policy changes, the German and French budget deficits are expected to remain around 4% of GDP in 2004, while Italy, the Netherlands, Portugal and Greece are also likely to exceed the 3% of GDP limit specified in the Stability Pact in 2004 and/or 2005.
Rosemary Radcliffe, chief economic adviser to PricewaterhouseCoopers, commented that:
|
"The Euroland economic recovery is still very fragile, so this is not the time to be raising taxes or cutting spending, or to be tightening monetary policy. Indeed, although the ECB seems likely to keep interest rates on hold for the moment, they need to stand ready to cut rates again to keep the recovery on track if there should be signs that it is faltering." |
Outside of Euroland, the report paints a more optimistic picture. The UK economy is expected to maintain its recent generally positive performance in 2004, growing at an above trend average rate of around 3%. Inflation should remain under control in this scenario, but interest rates are likely to continue to rise gradually over the next year, slowing GDP growth to an average of around 2.5% in 2005.
The new EU accession countries are also expected to continue to grow significantly faster than the EU average. In Poland, growth is expected to average around 4.5% in both 2004 and 2005, while in the Czech Republic and Hungary it should pick up from around 3.25% in 2004 to around 4% in 2005.
The Lithuanian economy grew at an impressive 9% in 2003, driven by strong domestic demand, consumer spending and increasing exports volumes. The trend should continue although growth is expected to moderate to around 6.5% in 2004 and 6% in 2005. Nevertheless, Lithuania looks set to continue to be the fastest growing economy in Europe.
Chris Butler, PricewaterhouseCoopers Senior Partner for Lithuania, added that:
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"The prospects for Lithuania and the other accession countries continue to look good, but economic reforms must continue if Lithuania is to maintain its competitiveness within the expanded EU." |
Notes to Editor
- The table below sets out PricewaterhouseCoopers main scenario for European economic growth in 2004 and 2005:
Table - Outlook for European GDP growth (%)
| Country/region |
2003 |
Main scenario |
2004 |
2005 |
| Germany |
- 0.1 |
1.25 |
2 |
| France |
0.5 |
2 |
2.5 |
| Italy |
0.3 |
1 |
2 |
| Spain |
2.4 |
3 |
3.25 |
| Netherlands |
- 0.7 |
1.25 |
2.25 |
| Other Euroland |
0.8 |
1.75 |
2.5 |
| Euroland |
0.4 |
1.5 |
2.25 |
| Plausible range for Euroland |
- |
1-2 |
1.5-3 |
| UK |
2.2 |
3 |
2.5 |
| Sweden |
1.7 |
2.5 |
2.5 |
| Switzerland |
- 0.5 |
1.75 |
2 |
| Other Western Europe |
1.5 |
2.25 |
2.5 |
| Western Europe |
0.8 |
2 |
2.25 |
| Poland |
3.7 |
4.5 |
4.5 |
| Czech Republic |
2.9 |
3.25 |
4 |
| Hungary |
2.9 |
3.25 |
4 |
Source: Figures for 2003 from Eurostat; PwC growth scenarios for 2004-5 are rounded to the nearest quarter of one percent.
- Electronic copies of the report are available from our website at http://www.pwc.com/eeo.
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