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Economic forecasts
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 European Commission

EUROPEAN
ECONOMY

Directorate-General for Economic and Financial Affairs

2005 Number 5
© European Communities, 2005

Printed in Belgium
Economic forecasts
Autumn 2005
Abbreviations and symbols used
Member States
BE Belgium
CZ Czech Republic
DK Denmark
DE Germany
EE Estonia
EL Greece
ES Spain
FR France
IE Ireland
IT Italy
CY Cyprus
LV Latvia
LT Lithuania
LU Luxembourg
HU Hungary
MT Malta
NL The Netherlands
AT Austria
PL Poland
PT Portugal
SI Slovenia
SK Slovakia
FI Finland
SE Sweden
UK United Kingdom

EUR-12 European Union Member States having adopted the single currency (BE, DE, EL, ES, FR, IE, IT, LU,
NL, AT, PT, FI)
EU-25 European Union, 25 Member States
EU-15 European Union, 15 Member States before 1 May 2004 (EUR-12 plus DK, SE and UK)
AC-10 European Union, 10 Member States that joined the EU on 1 May 2004 (CZ, EE, CY, LV, LT, HU, MT,
PL, SI, SK)

Currencies
EUR euro
ECU European currency unit
DKK Danish krone
GBP Pound sterling
SEK Swedish krona
CAD Canadian dollar
CHF Swiss franc
JPY Japanese yen
SUR Russian rouble
USD US dollar

iv
Other abbreviations
SCPs Stability and convergence programmes
PEPs Pre-accession economic programmes
NMS New Member States
SGP Stability and Growth Pact

v
Contents

Overview 1

Chapter 1: The world economy 11

1. World economic activity to remain robust despite high oil prices 13

Chapter 2: The economies of the euro area and the EU 19

1. Growth decelerated in the first half of 2005 21
2. Financial conditions remain supportive of growth in the EU 26
3. A gradual return to potential growth (with alternative risk scenarios) 29
4. Improvement in labour market conditions 33
5. Headline inflation lifted by rising oil prices 36
6. Fiscal consolidation stalls in the wake of weak economic growth 39

Chapter 3: Member States 41

1. Belgium: A slow economic recovery 42
2. Czech Republic: Strong growth fuelled by vigorous exports 44
3. Denmark: An economy in excellent shape on most scores 46
4. Germany: Domestic demand picking up only gradually 48
5. Estonia: Booming activity, with external balance set to improve 51
6. Greece: Growth returns to potential 53
7. Spain: Sustained growth but higher external imbalances 55
8. France: More balanced growth 58
9. Ireland: Growth to continue, fuelled by domestic demand 61
10. Italy: Signs of a moderate recovery 63
11. Cyprus: Steady growth and fiscal consolidation 66
12. Latvia: Growth fever 68
13. Lithuania: Slower, but still robust growth 70
14. Luxembourg: Healthy growth but some clouds on the horizon 72
15. Hungary: Repeatedly missed deficit target 74
16. Malta: Capital transfers sustain growth 76
17. Netherlands: The end of the tunnel, at last? 78
18. Austria: Waiting for private consumption to respond to the tax cuts 80
19. Poland: Gradual recovery in the offing, but lack of fiscal reform 82
20. Portugal: Macro-economic imbalances looming large 85
21. Slovenia: Exports supporting economic growth 87
22. Slovakia: Domestic demand continues to drive growth 89
23. Finland: Growth to rebound from temporary reversal 91
24. Sweden: Continued recovery after blip 93
25. United Kingdom: Catching its breath 95

Chapter 4: Acceding Countries 99

1. Bulgaria: Strong growth with increasing external imbalances 100
2. Romania: Pro-cyclical policies cause widening of external imbalances 102

vii
Chapter 5: Candidate Countries 105
1. Croatia: Modest rebound of growth after soft landing 106
2. Turkey: Economy growing close to potential 108

Chapter 6: Other non-EU Countries 111

1. United States of America: Expansion expected to slow down 112
2. Japan: On track for a continued recovery, albeit at a moderate pace 114

Statistical Annex 117

Tables
0.1 Main features of the Autumn 2005 forecast - EU25 3
0.2 Main features of the Autumn 2005 forecast - euro area 4
1.1 International environment 16
2.1 Quarter-on-quarter GDP growth in the euro area 21
2.2 Composition of growth - EU25 29
2.5 Sectoral employment growth in the euro area 33
2.6 Labour market outlook - EU25 35
2.7 Inflation outlook - euro area and EU25 38
2.8 General government budgetary position - EU25 40
3.1 Main features of country forecast - BELGIUM 43
3.2 Main features of country forecast - CZECH REPUBLIC 45
3.3 Main features of country forecast - DENMARK 47
3.4 Main features of country forecast - GERMANY 50
3.5 Main features of country forecast - ESTONIA 52
3.6 Main features of country forecast - GREECE 54
3.7 Main features of country forecast - SPAIN 57
3.8 Main features of country forecast - FRANCE 60
3.9 Main features of country forecast - IRELAND 62
3.10 Main features of country forecast - ITALY 65
3.11 Main features of country forecast - CYPRUS 67
3.12 Main features of country forecast - LATVIA 69
3.13 Main features of country forecast - LITHUANIA 71
3.14 Main features of country forecast - LUXEMBOURG 73
3.15 Main features of country forecast - HUNGARY 75
3.16 Main features of country forecast - MALTA 77
3.17 Main features of country forecast - NETHERLANDS 79
3.18 Main features of country forecast - AUSTRIA 81
3.19 Main features of country forecast - POLAND 84
3.20 Main features of country forecast - PORTUGAL 86
3.21 Main features of country forecast - SLOVENIA 88
3.22 Main features of country forecast - SLOVAKIA 90
3.23 Main features of country forecast - FINLAND 92
3.24 Main features of country forecast - SWEDEN 94
3.25 Main features of country forecast - UNITED KINGDOM 97
4.1 Main features of country forecast - BULGARIA 101

viii
 4.2 Main features of country forecast - ROMANIA 103
5.1 Main features of country forecast - CROATIA 107
5.2 Main features of country forecast - TURKEY 109
6.1 Main features of country forecast - UNITED STATES 113
6.2 Main features of country forecast - JAPAN 115

Boxes
2.1 Some specificities behind the forecasts 25
2.2 Simulation of alternative scenarios 32

Graphs
1.1 Oil prices (Brent) in USD and € 13
1.2 Oil prices - real and nominal 14
1.3 Oil price expectations (Brent) in USD 14
1.4 Long-term interest rates, euro area and US 15
2.1 Exports of goods and real effective exchange rate, euro area (1999=100) 22
2.2 Private consumption and consumer confidence, euro area 22
2.3 Loans to households, euro area 23
2.4 Household saving rates, euro area and Member States 23
2.5 Investment in the euro area 23
2.6 Investment-to-GDP ratio in various recoveries, euro area 24
2.7 GDP quarter-on-quarter growth, euro area and selected Member States 24
2.8 Net financial position of non-financial corporations, euro area 26
2.9 Corporate debt to GDP, euro area 26
2.10 Corporate sector exposure, euro area 27
2.11 Total external funding demand of the corporate sector 27
2.12 Composition of outstanding bank loans to households in August 2005, euro area 28
2.13 Household debt to GDP and to disposable income, euro area 28
2.14 Credit to the private sector, some recently-acceded Member States 28
2.15 Growth contributions, euro area 29
2.16 Unemployment and private consumption, euro area 30
2.17 Profit margins and investment in equipment, euro area 31
2.18 Employment growth and unemployment rate in the euro area 34
2.19 Headline and core inflation, euro area 36
2.20 Breakdown of industrial producer prices, euro area 37
2.21 Euro-area HICP inflation and inflation expectations 38
2.22 Fiscal stance and cyclical conditions in non-EDP countries: 2005-2007 39
3.1 Belgium - Deficit and debt as % of GDP in 1970 - 2004 42
3.2 Czech Republic - Current account and trade balance 44
3.3 Denmark - Contributions to GDP growth 46
3.4 Germany - GDP and contributions to growth 48
3.5 Germany - Components of gross fixed capital formation 48
3.6 Estonia - GDP growth and its contributors 51
3.7 Greece - Net lending and consolidated gross debt 53
3.8 Spain - Households use of income account 55
3.9 Spain - Deficit in external accounts 55
3.10 France - GDP and domestic demand 58
3.11 France - Household's savings rate 58

ix
 3.12 Ireland - GDP growth compared with the euro area and growth contributions 61
3.13 Italy - Relative exports prices and market performance 63
3.14 Italy - Government gross debt and primary balance 63
3.15 Cyprus - Unemployment rate, real wage growth and GDP growth 66
3.16 Latvia - Prices and wages 68
3.17 Lithuania - GDP growth and its contributors 70
3.18 Luxembourg - Employment and unemployment 72
3.19 Hungary - Government deficit and debt 74
3.20 Malta - General government finances 76
3.21 The Netherlands - GDP growth and employment growth 78
3.22 Austria - Growth profiles of GDP and private consumption 80
3.23 Poland - GDP growth and its contributors 82
3.24 Poland - General Government finances 82
3.25 Portugal - Net external borrowing and its composition 85
3.26 Slovenia - Price and wage developments 87
3.27 Slovakia - GDP growth and contributors 89
3.28 Finland - Industrial prodution and exports 91
3.29 Sweden - GDP growth compared with euro area and growth contributions 93
3.30 United Kingdom - Contributions to GDP growth 95
3.31 United Kingdom - General government budget balance and investment 95
4.1 Bulgaria - Growth, current account deficit and net FDI 100
4.2 Romania - GDP and current account deficit 102
5.1 Croatia - Contributions to growth 106
5.2 Turkey - GDP growth 108
6.1 United States - Fiscal and current account deficits set to increase 112
6.2 Japan - Real GDP growth rates 114

x
Overview

Gradual growth revival After reaching annual average growth rates above 2% last year, economic
underway in the euro activity in the euro area and the EU has been more subdued this year, but is
area and the EU expected to return to potential at the beginning of next year. From an
estimated 1.3% in the euro area and 1.5% in the EU in 2005, growth is
projected to reach 1.9% and 2.1%, respectively, next year and to accelerate
further to 2.1% and 2.4% in 2007.

The main factors behind the outlook include an accommodative

macroeconomic policy mix, benign financial conditions, wider profit
margins, a weaker nominal effective exchange rate and a robust global
environment.

Over the forecast horizon, the recovery is underpinned by an acceleration

in domestic demand, with a slight stimulus in net terms from the external
sector. This includes, more specifically, a relatively strong pick-up in the
pace of investment expenditure and a more gradual recovery of private
consumption. A steady improvement is also foreseen for the labour
market, supported by continued wage moderation and the revival of
confidence among entrepreneurs. Employment growth in the euro area is
expected to rise from 1% in 2005 to 1.2% in 2006, while easing slightly to
1.1% in 2007. For the EU as a whole, the profile is similar, although the
growth in employment is projected to be slightly lower throughout the
forecast horizon.

Global growth and trade World GDP growth exceeded 5% last year, the fastest pace since the early
to moderate, while seventies. Despite the soft patch in growth in the second quarter of this
remaining vibrant year, the outlook for the global economy remains bright. Economic
activity is projected to normalise to 4.3% this year and next, before edging
slightly lower in 2007. Many of the factors behind last year’s stellar
performance remain in place. These include supportive macroeconomic
policies, low real interest rates, housing-market-induced wealth effects, as
well as sustained strong growth in certain economies, such as China, India
and most of the oil-exporting countries.

Growth decelerated across most regions of the world in the second quarter
of this year, partly as a result of rising oil prices. The slowdown was most
apparent in the manufacturing sector. Growth remained healthy in the US,
supported by private consumption and is expected to reach 3.5% on
average this year. Nonetheless, in view of the unbalanced nature of the
domestic source of US growth and the large and rising current account
deficit and general government deficit, this pace of economic expansion is
probably unsustainable. Accordingly, the growth rate is projected to fall to
3.2% next year and to 2.7% in 2007.

After last year’s recession, the Japanese economy staged a comeback early
this year due to a strong rebound in domestic demand, especially
investment. Growth is set to yield a robust 2.5% this year, before easing
next year to 2.2%. Deflation in consumer prices is still present in the
economy but is projected to turn into inflation from 2006 onwards.
Although easing, growth in Asia (excluding Japan) is set to remain strong
in the region of 7-7.2% over the forecast horizon. The pace of China’s

1
Economic Forecasts, Autumn 2005

growth is expected to moderate somewhat from over 9% to around 8.2%,

while India’s growth rate is sustained at around 7%. Among the other
emerging regions, economic activity in Latin America is set to cool down
in 2006-7, while growth should accelerate next year in some parts of
Africa. Rising oil revenues have limited the slowdown in the main oil-
exporting countries, with economic activity projected to remain around 6%
in Russia. In the candidate and acceding countries, the dynamic
performance of last year is expected to be followed by lower, but still
robust, growth of around 5% in 2006 and 2007.

Having reached an annual average growth rate of around 11½% in 2004,

the pace of world trade growth decelerated in the first quarter of this year
in line with the slowdown in the global manufacturing sector, but
recovered once again in the second quarter. World trade growth is set to
reach a lower 7% this year and to stabilise in the vicinity of 7.2% over the
forecast horizon as a result of the projected moderation in world growth.

Energy prices escalate, World commodity prices maintained their upward trend this year. The rise
while real long-term was driven mainly by the sharp price increase in oil and other energy
bond yields remain low products.

In view of the sustained rise in oil prices over the last twelve months,
reaching record highs in September of this year, the assumed profile for oil
prices has been revised upwards considerably compared to the spring
forecasts. From an average of USD 49 per barrel (Brent crude) in the first
half of this year, the price of oil is assumed to rise to USD 61.5 in the
second half of next year before declining gradually to USD 59.5 per barrel
at the end of 2007. This leads to an average of USD 55 per barrel for this
year, USD 61.4 per barrel next year and USD 60.3 per barrel in 2007.
After a rise of 45% this year, this profile implies a further increase of 12%
next year, followed by a slight decline in 2007.

In real terms, the price of oil has not reached the peak level recorded
during previous shocks and the oil-intensity of industrialised oil-importing
economies has been reduced substantially during the last twenty-five years.
Nevertheless, the sustained increase has taken its toll on world growth and
the persistence of higher oil prices and their increased volatility have
adverse implications for the outlook for growth and inflation over the
forecast horizon.

Euro-area equity markets have experienced a sustained upward trend since

April of this year, having fluctuated in a fairly narrow range in previous
months. While there is considerable variation across Member States, euro-
area equity markets – in line with broader European and Japanese share
prices - have tended to outperform the US market, which has remained
broadly flat. The decoupling of European and US long-term bond yields,
which began in the fourth quarter of last year, continued for much of this
year. In the euro area, long-term government bond yields maintained their
downward trend, reaching record lows in September. Since then, yields
have increased as rising inflation expectations boosted market expectations
of the likelihood of a tightening of monetary policy. From the third quarter

2
 Overview

of last year until very recently, no trend was apparent in US yields.

Accordingly, the yield differential vis-à-vis the euro-area rose to 120 basis
points in October, a gap not observed since 1999, before diminishing once
again with the rise in euro-area yields. Real yields remain low in historical
terms both in the US and in Europe. Emerging market and corporate bond
spreads have continued to narrow this year. On the whole, financial
conditions have improved further since the spring and remain supportive to
growth.

Subdued growth in the After growing at potential last year, the economic performance of both the
euro area and the EU in euro area and the EU was disappointing in the first half of this year.
the first half of this year Following a modest acceleration to 0.4% in the first quarter in the euro
…. area, real GDP growth slowed to 0.3% in the second quarter. For the EU,
the pace of economic activity was sustained at 0.4% in both quarters. In
assessing the quarterly data outturn, it is worth noting that the working-day
adjustment may have distorted the outcome for the first quarter.

The pattern of a strengthening contribution to growth from domestic

demand and a negative contribution from the external sector, which had
emerged in the second half of last year, was broken in the first quarter of
this year. The pick-up in domestic demand faltered and net exports
became once again the main driving force behind growth in both the euro
area and the EU. Reflecting the deceleration in world trade growth, this
was achieved through a sharp contraction in imports, which outweighed a
smaller decline in exports. The outcome for the second quarter proved
more encouraging for the prospects of a revival of the domestic demand,
since growth was driven almost exclusively by the latter. For the EU, the
contribution to growth was shared across consumption and investment,
while the accumulation of inventories also played an important role in the
euro area. Growth in investment picked up in both the euro area and the
EU between the first and second quarters. However, private consumption

Table 0.1
Main features of the Autumn 2005 forecast - EU25
(Real annual percentage change Autumn 2005 Difference vs
unless otherwise stated) forecast ¹ spring 2005 (a)
2002 2003 2004 2005 2006 2007 2005 2006
GDP 1.2 1.2 2.4 1.5 2.1 2.4 -0.5 -0.2
Consumption 1.6 1.6 2.1 1.6 1.6 2.1 -0.3 -0.4
Total investment -1.2 0.8 3.0 2.3 3.5 3.6 -1.3 -0.6
Employment 0.4 0.2 0.6 0.9 1.0 1.0 0.2 0.2
Unemployment rate (b) 8.7 9.0 9.0 8.7 8.5 8.1 -0.3 -0.2
Inflation (c) 2.1 1.9 2.1 2.3 2.2 1.9 0.4 0.5
Government balance (% GDP) (d) -2.4 -3.0 -2.6 -2.7 -2.7 -2.7 -0.1 -0.2
Government debt (% GDP) 61.4 63.0 63.4 64.1 64.2 64.3 0.0 0.0
Current account balance (% GDP) 0.3 0.1 0.0 -0.3 -0.4 -0.3 -0.3 -0.4

¹ The Commission services' Autumn 2005 Forecasts are based on available data up to November 7, 2005.
(a) A "+" ("-") sign means a higher (lower) positive figure or a lower (higher) negative one compared to Spring 2005.
(b) Percentage of the labour force. (c) Harmonised index of consumer prices, nominal change.
(d) Including proceeds relative to UMTS licences.

3
Economic Forecasts, Autumn 2005

growth remained unchanged in the euro area, while accelerating slightly in

the EU. Supported by a weaker euro, export growth surged in the euro
area, but an even sharper acceleration in the growth of imports left the
growth contribution of the external sector at almost zero.

....followed by a pick-up Following the poor readings at the first half this year, survey indicators
in the second half of the began to send out positive signals once again during the third quarter of
year and a return to this year on the prospects for a renewal of the recovery. After dropping in
potential growth in 2006 the first half of the year, the overall economic sentiment indicator for the
euro area from the Harmonised EU Business and Consumer Surveys
exhibited a sustained increase in the third quarter, which has extended into
the start of the fourth quarter. The composite Purchasing Managers Index
(PMI) has followed a similar path.

While the surge in oil prices took a toll on business confidence in the first
half of the year, the confidence indicator for the euro-area manufacturing
sector has been rising since the turn of the second quarter. The flat trend in
confidence in the services sector, which emerged at the beginning of 2004,
was maintained for most of this year. However, there is some evidence of
a change for the better more recently in both the business climate indicator
and the PMI for services in the euro area. Current levels of the PMI for
both manufacturing and services remain consistent with a continuation of
economic expansion in both the manufacturing and services sectors.

Table 0.2
Main features of the Autumn 2005 forecast - euro area
(Real annual percentage change Autumn 2005 Difference vs
unless otherwise stated) forecast ¹ spring 2005 (a)
2002 2003 2004 2005 2006 2007 2005 2006
GDP 0.9 0.7 2.1 1.3 1.9 2.1 -0.3 -0.2
Consumption 0.9 1.1 1.6 1.4 1.4 1.9 -0.2 -0.4
Total investment -2.0 0.9 2.3 1.7 3.1 3.2 -1.1 -0.6
Employment 0.7 0.3 0.7 1.0 1.2 1.1 0.3 0.3
Unemployment rate (b) 8.3 8.7 8.9 8.6 8.4 8.1 -0.2 -0.1
Inflation (c) 2.3 2.1 2.1 2.3 2.2 1.8 0.4 0.7
Government balance (% GDP) (d) -2.5 -3.0 -2.7 -2.9 -2.8 -2.8 -0.3 -0.1
Government debt (% GDP) 69.2 70.4 70.8 71.7 71.7 71.8 0.0 -0.2
Current account balance (% GDP) 0.8 0.5 0.6 0.0 -0.1 -0.1 -0.6 -0.7

¹ The Commission services' Autumn 2005 Forecasts are based on available data up to November 7, 2005.
(a) A "+" ("-") sign means a higher (lower) positive figure or a lower (higher) negative one compared to Spring 2005.
(b) Percentage of the labour force. (c) Harmonised index of consumer prices, nominal change.
(d) Including proceeds relative to UMTS licences.

4
 Overview

Unlike business confidence, the indicators for consumer confidence have

continued to provide little encouragement for a near-term acceleration in
consumer spending. While the Commission’s consumer confidence
indicator has edged up recently, this follows a decline since the beginning
of the year. The index remains below its long-term average, as well as
below the levels recorded at a similar stage in previous upswings. The
retail confidence index also witnessed an increase in recent months, but its
longer-term trend has been flat since the end of 2003.

In general, although the trends are similar, the Commission’s overall

economic confidence indicator for the EU has exceeded that for the euro
area since the third quarter of 2003. This is mainly due to the consistently
higher level of consumer confidence in the EU, while the levels of the
industrial and services confidence indicators have been almost
indistinguishable from their euro-area counterparts in recent months.

With these indicators providing a background, the impulse to domestic

demand stems mainly from a strong acceleration in gross fixed capital
formation, especially in 2006. The case for a strengthening of investment
growth is underpinned by favourable financial conditions, improved
balance sheets, wider profit margins, and an increasing need for
replacement investment. The projected pick-up in private consumption
over the forecast horizon is more gradual in view of the subdued level of
consumer confidence. However, good progress in the implementation of
structural reforms in some countries has resolved some uncertainties,
which have acted as a brake on consumption in the past. And although
purchasing power prospects of consumers may be dented by rising energy
prices in the near-term, the real disposable income of households should be
sustained by the projected rise in employment and the effect on wealth of
buoyant housing markets and rising stock markets in several countries
should also provide a positive impetus to private consumption.

There are several factors underpinning the outlook for a sustained recovery
in the euro area and the EU over the forecast horizon. The accommodative
financial conditions and policy-mix, which have prevailed for some time
now, together with the progress made in the implementation of structural
reforms by some Member States, mean that the euro-area and the EU are in
a strong position to participate in the global industrial recovery that is now
in progress. On the investment side, the latter recovery, reinforced by the
depreciation in the effective exchange rate during this year provides the
boost to demand, which allows corporate investors to finally take
advantage of their improved balance sheets and profit margins. The
resilience of many of the world’s economies in the face of soaring oil
prices has also served to boost investor confidence in the prolongation of
the current phase of strong demand. The return of confidence in the
business sector should permeate through to consumers as employment
grows further and unemployment declines. Indeed, the fact that consumer
confidence has not lost further ground following the surge in oil prices
over the summer could imply that this process has already started. The
case of Germany is particularly telling because of its considerable share in
euro-area GDP. Here the strong improvement in competitiveness has laid

5
Economic Forecasts, Autumn 2005

the foundations for the resurgence of domestic demand in Germany, which

would have positive spillover effects on other Member States.

Improvement in labour Both the euro-area and the EU labour markets have been markedly less
market conditions influenced by the recent economic downswings and upswings, compared
to earlier cycles. Although the labour market conditions worsened with the
usual lag to the economic slowdown in 2001-2003, the rise in the annual
unemployment rate was limited to one percentage point, compared to a rise
of over three percentage points in the early nineties. In this cycle,
unemployment peaked at 8.9% of the labour force in the euro area in the
fourth quarter of 2004. Several factors bear witness to the structural
improvement in the functioning of the labour market, including a decline in
long-term unemployment rates and in the average duration of
unemployment spells, as well as an improvement in the matching process.

In line with the usual lagged response of the labour market, around 1.4
million jobs are expected to be created this year in the euro area and 1.9
million in the EU. These figures should improve further in 2006 as growth
regains momentum. The euro-area unemployment rate is expected to
diminish from 8.6% this year to 8.1% in 2007. For the EU, the profile is
similar, from a higher starting point of 8.7% this year to 8.1% in 2007.

No second-round effects Boosted by such factors as rising energy prices and, to a lesser extent, the
from rising energy temporary impact of rises in indirect taxes and administered prices,
prices headline inflation in the euro area remained sticky this year. On the other
hand, since the second half of last year, core inflation has maintained a
downward trend until recently. Inflation expectations, as derived from
index-linked bonds, continued to fall until mid-year, despite rising oil
prices. While rising slightly above 2% in the third quarter, the survey
evidence suggests that second-round effects remain contained due to
ongoing wage moderation and in spite of the continued increase in energy
prices. From an estimated average rate of 2.3% in 2005, headline inflation
is expected to edge lower to 2.2% next year and a further fall to 1.8% is
foreseen for 2007. For the EU as a whole, the projected profile over the
forecast horizon is similar. After an initial rise from 2.1% in 2004 to 2.3%
this year, a decline is projected to 2.2% next year and 1.9% in 2007.

Fiscal consolidation Over the forecast horizon the general government deficit in the euro area is
stalls as economic expected to mainly reflect cyclical developments. It is forecast to rise to
growth weakens 2.9% of GDP in 2005, up from 2.7% of GDP a year earlier, in the wake of
slowing economic growth, and to diminish again marginally in 2006 and
2007 in the context of a moderate economic recovery. Based on the usual
assumption of unchanged policies, the fiscal stance is expected to be
broadly neutral. In the EU, the nominal deficit is expected to remain at
2.7% of GDP throughout the forecast horizon. Thanks to the planned
fiscal adjustment effort in some non-euro area countries, the fiscal stance is
expected to be slightly restrictive for the EU as a whole.

Among the euro-area Member States, which are currently running an

excessive deficit, Portugal, Greece, Germany and Italy are projected to
achieve, to varying degrees, some fiscal consolidation in 2006. In the case

6
 Overview

of Germany, current policies do not include the 2006 draft budget, the
presentation of which was delayed in view of the early elections in
September. In France, under current policies, the deficit would rebound in
2006, due to the expiry of a large one-off operation carried out in 2005.
Overall, current polices are expected to be insufficient to bring the deficit
below the reference value by the end of the forecast horizon in any of the
euro-area Member States, which are currently under the excessive deficit
procedure. Euro-area Member States with a relatively favourable budget
balance are expected to stabilise or slightly ease their fiscal position in
2006 and beyond.

Outside the euro area, the fiscal outlook across countries is relatively
heterogeneous. Among the six recently-acceded Member States with an
excessive deficit, Hungary and the Czech Republic are expected to further
widen their budget deficit in 2006. In the case of Hungary, the upward
trend is projected to continue also in 2007, when current policies are likely
to bring the deficit close to 7% of GDP. Current policies are expected to
keep the deficit above the 3% of GDP reference value in Poland and the
United Kingdom. By contrast, Cyprus is projected to correct the excessive
deficit by a small margin in 2005, followed by Slovakia and Malta in 2006.
In the non euro-area Member States with a relatively favourable budgetary
position, current policies are mostly expected to produce a slight increase
the deficit or to reduce the surplus.

The upward trend in the euro-area debt ratio observed since 2003 is not
expected to reverse during the forecast period. It is projected to reach
71.8% of GDP in 2007, one percentage point higher than in 2004. A
similar development is expected in the EU, where the debt ratio is set to
increase, to close to 64½% of GDP in 2007, up from 63½% of GDP in
2004. Concerning the respect of the 60% of GDP reference value, apart
from Portugal, where the debt ratio is estimated to rise above 60% of GDP
in 2005, no Member State is expected to cross the reference value over the
forecast horizons, either from above or below. Among the countries with a
debt ratio above the 60% of GDP threshold, Belgium, Greece, Cyprus and
Austria are projected to further reduce it up to 2007 (inclusive). In Italy,
following a sharp increase in 2005, the debt ratio is also projected to
decline slowly over the forecast horizon, mainly on account of the planned
receipts from privatisations. Conversely, a further increase in the debt
ratio is expected to take place in Germany, France and Portugal.

Upside and downside The central scenario in this forecast paints a picture of robust global
risks to the forecast economic growth, a sustained momentum in world trade growth and a
return to potential growth in the euro area and the EU as a result of a
strengthening of domestic demand. However, there are several factors that
should be taken into account in assessing the risks to this forecast.

The effects of the sharp rise in energy prices this year have been
incorporated in the central scenario described above. However, in view of
the vulnerability of oil production and refining to further climatic, security
and political-tension disruptions, the possibility of even higher prices
cannot be ruled out. Although world economic growth has withstood the

7
Economic Forecasts, Autumn 2005

effect of the oil-price shock well so far, it cannot be excluded that negative
non-linear confidence effects might come into play in the relationship
between energy prices and economic growth at higher price levels.

The resilience of growth in the US has continued to surprise forecasters in

recent years. However, an adjustment of consumer behaviour in the US in
the light of growing uncertainties about future income and the impact of
rising interest rates cannot be ruled out.

Global current account imbalances have continued to rise this year. Hence,
a disorderly correction of global imbalances remains a threat to world
growth. The new Chinese exchange rate policy may be seen as the first of
a series of steps that would lead towards more burden-sharing in the
correction of global imbalances. However, this step alone is not sufficient
to alleviate fears that a large share of the burden of adjustment would fall
on European exporters in the event of a disorderly unwinding of the
imbalances. Furthermore, an abrupt shift in investor expectations
regarding global economic growth and inflation could lead to a severe
correction in some asset prices, with adverse implications for both
financial markets and the real economy.

On the positive side, the counterbalancing effect of the behaviour of oil-

exporting countries should also be considered. There is evidence to
suggest that the EU has already benefited from the recycling of oil earnings
from these countries. Since the start of 2001, the value of EU exports to
OPEC and the CIS has grown at annualised rates of 13% and 20%,
respectively, compared to 5.5% to the “rest of the world”. Should the oil-
exporting countries choose to spend a larger share of their additional
income from oil on imports, the EU would be well placed to benefit from
this extra demand.

Internally, private consumption is subject to both upside and downside

risks. Consumer confidence could improve by more than expected due to
better labour market conditions and a reduction of uncertainty over future
income streams, thanks to past or ongoing structural reforms. Such a
recovery in confidence could trigger a release of the pent-up demand,
which has accumulated in the household sector and which could be
financed through a reduction in the saving rate. The nature of the risk
associated with buoyant housing market in some Member States is difficult
to assess. The perceived wealth effects from rising housing prices could
boost consumption expenditure, while a correction of the over-valuation of
housing would work in the opposite direction.

In the case of investment, positive risks arise from stronger growth of

specific housing markets, stronger-than-expected external demand or
higher productivity as a result of IT-investments and past reforms.
Negative risks include higher oil prices, a disappointing development of
aggregate demand and entrenched low-growth expectations.

Overall, the risks are tilted to the downside on the external side, but appear
to be balanced on the domestic side.

8
 Overview

Acceding and In the acceding and candidate countries, GDP growth is expected to remain
Candidate Countries relatively high over the forecast horizon, at more than 5% in Bulgaria,
Romania and Turkey each year, while accelerating to nearly 4½% in
Croatia in 2007. Rising labour productivity and an expanding and
modernised capital stock are the main sources of this continued expansion.
In all countries, domestic demand should continue to outpace production,
driven by a strong investment performance and also by private
consumption. In Bulgaria and Romania, private consumption expenditure
has recently expanded particularly rapidly, and is set to decelerate only
gradually over the forecast horizon.

Inflation is forecast to decline or remain relatively subdued. Rising

productivity and competition in these economies and overall prudent fiscal
and monetary policies are conducive to this outlook, combined with a real
appreciation of the currencies in some countries. However, in all countries
rising commodity prices are expected to weigh on inflation, for example by
slowing down disinflation in Turkey and Romania or temporarily boosting
inflation in Bulgaria and Croatia.

Labour markets are likely to benefit from strong output growth:

employment is forecast to rise, particularly in Turkey by more than 2%
annually. Unemployment rates are accordingly expected to decline, to
around 7% in Romania in 2007, 9½% in Bulgaria and Turkey, and 12% in
Croatia.

Bulgaria is expected to show balanced government balances and Romania

is projected to have small deficits, also underpinned by strong economic
growth. In Croatia and Turkey, deficits are currently at higher levels, but
are expected to narrow by 2007 to less than 3% in Turkey and around 3.5%
in Croatia.

In all the acceding and candidate countries, current account deficits have
been widening during 2005, due to strong domestic demand, together with
rising oil prices. External imbalances are forecast to remain high, in
particular in Bulgaria and Romania, where current account deficits are set
to hover around 10% of GDP in 2006 and 2007, while they are expected to
reach around 6% of GDP annually over the forecast horizon in Croatia and
Turkey.

9
Chapter 1
The world economy
1. World economic activity to remain
robust despite high oil prices

The world economy is expected to continue to expand Over the summer and early autumn, oil prices rose
at a robust pace, despite the impact from higher further, driven by concerns about supply disruptions
energy prices and the negative effect of Hurricane and shortage of refining capacity. In particular,
Katrina on the US economy in the second half of this Hurricane Katrina influenced prices of crude oil by
year. This is accompanied by a slower, but still initially halting crude oil production by around 1.5
robust, expansion of world trade. Financial conditions million barrels per day (mb/d.), while global
remain supportive of global growth with continued production was 84.7 mb/d. in August, according to the
low long-term real interest rates and low risk premia International Energy Agency (IEA). As a result, oil
on corporate and emerging market debt, although US prices initially jumped to new record levels in
short-term interest rates have been increasing due to nominal terms, with the price of Brent crude futures
ongoing removal of monetary policy accommodation climbing to around 68 USD/bl. around the end of
in view of growing threats to inflation. Growth in the August and the beginning of September. In addition,
demand for oil is expected to slow somewhat as Hurricane Katrina and the ensuing flooding also
global growth decelerates and as higher prices curb disrupted as much as a quarter of US refinery
demand. Nevertheless, oil prices are expected to capacity. This occurred at a time when refining
remain high for the forecast horizon due to limited capacity in the US was already stretched to the limit.
excess supply and refinery capacity and continuing The outcome was not only a jump in US petrol prices,
concerns about the security of supply. Although the but also a significant increase in petrol prices in
world economy has, so far, withstood higher oil prices Europe, as the prevailing market prices in the US
quite well, high and volatile oil prices remain a prompted exports of petrol from Europe.
significant source of downside risk for the world
economy in the short term, in particular for oil- The IEA Member States on 2 September to make
importing countries. Global current account available to the market an equivalent of 2 mb/d. of
imbalances are set to persist, implying ongoing crude oil from reserves for an initial period of 30 days
downside risks related to a disorderly adjustment. brought crude oil prices down from their record levels
and reduced the pressure on petrol prices. In addition,
Oil prices peak in the third quarter demand growth projections have been revised down
somewhat recently by the IEA, also alleviating the
The high level of oil prices weighed on growth during pressure on crude oil prices.
the first half of the year and is currently one of the
main sources of uncertainty surrounding the outlook The easing of prices has occurred despite the fact that
for both the EU and the world economy. Hurricane Rita added to the disruption caused by
Hurricane Katrina. Nevertheless, the prices of both
Graph 1.1: O il prices (Brent) in USD and € crude oil and refined products remain high.
80 level
Since the end of last year, the price of oil (monthly
70 averages) has risen by close to 50% in US dollar
60
terms and around 60%, when measured in euro.
However, the current price level in real terms and the
50 pace of the recent price increases remain below the
40
supply-driven price shock of the late 1970s and early
1980s. In real terms, the current price level is
30 approximately 35% below the record highs of the
20
early 1980s in US dollar terms. Several factors imply
upside risks to oil prices. Although slowing, demand
10 is projected to remain robust. In its October report,
0 the IEA projected that oil demand would rise by 1.5%
01 02 03 04 05 in 2005 and 2.1% in 2006. In addition, in a more
Brent (USD/bl.) Brent (Euro/bl.)
short-term perspective, the increased demand in the
northern hemisphere winter season could also create
some upward pressure on prices.

13
Economic Forecasts, Autumn 2005

Graph 1.2: O il prices - re al and nominal Graph 1.3: O il price e xpe ctations (Bre nt) in USD

90 USD/bl. 65 USD/bl.

80
60
70
55
60
50 50
40
45
30
20 40

10 35
0 Q1-05 Q2-05 Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07
1970 1975 1980 1985 1990 1995 2000 2005 Autumn 2005 Spring 2005
Autumn 2004
Real (US CPI) Nominal

The pace of global economic growth has withstood

But the recent surge in oil prices is mostly seen to be
rising energy prices quite well, but it is likely that the
due to concerns about supply developments. Under-
increase in oil prices has had some impact on the
investment in both crude production and refinery
global growth outlook. Calculations based on
capacity, as a reaction to low oil prices and excess
simulations with DG Economic and Financial Affairs
capacity in the refining sector in the 1980s and 1990s,
QUEST model suggest that a permanent 25% increase
has constrained supply capacities.
in oil prices – from a baseline of 48 USD/bl. (which
Higher oil prices should boost investment in new oil also leads to higher prices for natural gas with a time
production and alternative energy sources. However, lag) – could shave around 0.3 of a percentage point
since it takes several years for new investment in off euro-area GDP growth in the first year and 0.2 of a
supply capacity to enter the market, the low level of percentage point in the second. Euro-area inflation
spare capacity is likely to persist for some time. would be raised by about a quarter of a percentage
Lastly, the factors behind disruptions to production in point during the first two years after the shock. The
important oil-producing countries, i.e. political simulations take into account the repercussions on
instability, impact of hurricanes and ongoing security other regions of the world. The impact on US growth
risks, are likely to remain present thereby increasing is slightly higher and that on Japanese growth
the risk premium and the volatility in oil prices. marginally lower, as a result of their respective higher
and lower energy intensities.
The high level of oil prices is, therefore, expected to
prevail in the medium-term, with current futures In the simulations, some recycling of higher revenues
prices indicating that the price of oil would remain from oil-exporting countries is also taken into
around 60 USD/bl. in 2006 and 2007. account. There is evidence that the demand for
imports by oil-exporting countries has been increasing
Compared to the assumption in the spring forecast of strongly and that the EU has benefited more compared
an average price of 48 USD/bl. in 2006, the to previous episodes of rising oil prices. Since
assumption for oil prices in this forecast, based on January 2001, EU export values to OPEC and CIS
current futures prices, implies that the average price countries grew at annualised rates of 13% and 20%,
of oil in 2006 would be about 28% higher at around respectively, compared with 5.5% average growth for
61.4 USD/bl. In 2007, the price is expected to be exports to the rest of the world.
marginally lower, at 60.3 USD/bl., indicating that the
market participants believe that the current level of oil Nevertheless, the major oil-exporting countries have
prices will be maintained in the medium-term. in general seen current account surpluses jump along
with the oil price. Such high current account

14
 Chapter 1
The world economy

surpluses are likely to persist, although imports driven imbalances persist and that inflationary pressures
by strong domestic demand are likely to lead to following higher oil prices could yet emerge.
somewhat lower surpluses over the forecast horizon.
An important development in currency markets was
While the world economy is therefore expected to the decision by the Chinese authorities to allow some
withstand higher energy prices, the possibility of flexibility in the exchange rate of the yuan renminbi.
further oil price increases and the uncertainty So far, however, this has not caused any significant
surrounding the assessment of the impact of the price shifts in Asian currencies, but some gradual
increase seen so far, including the possibility of appreciation is expected in the coming years. Among
second-round effects on inflation, imply that oil prices the major currencies, the euro exchange rate has
should be considered as one of the main sources of continued to depreciate against the dollar, although
downside risks to the growth outlook. the dollar weakened temporarily in the wake of
Hurricane Katrina. Vis-à-vis the Japanese yen, the
Financial conditions remain supportive of growth euro is roughly unchanged compared to earlier in the
Although world growth has continued to be robust, year, but it has appreciated somewhat in recent
with inflation creeping up in many countries due to months, reversing the depreciation earlier in the year.
higher energy prices, and the US Federal Reserve Stock markets have also been supportive of growth,
continuing to withdraw monetary policy stimulus, contributing to the favourable financing conditions for
long-term interest rates remain low by historical firms. In Japan and Europe, equity prices have
standards. continued to increase on the back of solid profit
developments, whereas US equities have been
Graph 1.4: Long-te rm intere st rate s, e uro are a and US
relatively flat, as profit growth has passed its peak.
6.0 level
World growth set to remain robust
5.5
Following a relatively strong first quarter, the global
5.0 economy lost some momentum in the second quarter.
This was mainly due to a slowdown in the
4.5 manufacturing sector which was hit by rising oil
prices. Over the summer, momentum improved once
4.0 again and, despite the impact of Hurricane Katrina,
the world economy is expected to continue to grow at
3.5 robust rates over the forecast horizon. For 2005, the
world economy, excluding the EU Member States, is
3.0 set to grow by 5.1% (pps weighted), slowing slightly
01 02 03 04 05
to 4.9% in 2006 and 4.6% in 2007.
US (10-year bond) Euro area (10-year bond)
The US economy is expected to maintain its role as an
important driver of world growth, although growth
In the United States, the trend in long-term interest should gradually slow down as private consumption
rates has remained relatively flat until recently, growth is projected to moderate. In the first three
despite increases in short-term interest rates. In the quarters of the year, the US economy continued to
euro area, long-term interest rates declined further in expand above its long-term potential, boosted by
2005, but have also increased very recently in view of strong growth in consumer spending and solid growth
concerns about inflation and market expectations of a in business fixed investment and residential
tightening of monetary policy. Low interest rates also construction. Despite the continued relatively strong
benefited emerging market economies, as emerging growth momentum over the summer, it is expected
market spreads remain at historically low levels. that the growth out-turn later on this year will be
While low interest rates are supportive of growth, affected by Hurricane Katrina, as a result of the
they also imply risks for the outlook, in particular in disruptions to economic activity in the affected area
the medium-term, given that global current account and the effects of soaring energy prices. Overall, an

15
Economic Forecasts, Autumn 2005

annual growth rate of 3.5% is projected for this year, to possible unwinding of the US imbalances.
0.1 pp lower than the spring forecast. The clean-up
and rebuilding of the hurricane-affected area is likely In Japan, the economy has bounced back from the
to raise GDP growth in the first half of next year. technical recession seen in mid-2004. Strong GDP
Once this positive effect fades away, growth is growth in the first half of the year was mainly fuelled
projected to slow in conjunction with a gradual by a rebound in domestic demand. Looking ahead,
deceleration of consumer spending. Higher interest the Japanese economy is expected to sustain an
rates, along with slowing increases in house prices, expansion above potential in the coming quarters.
should stimulate personal saving. The cooling down With the global economic environment remaining
of the housing market should also curb growth in supportive of GDP growth and domestic demand
residential investment. maintaining its current momentum, this should lead to
annual GDP growth of 2.5% in 2005 (well over the
All in all, the US economy is projected to grow by 1.1% figure of the spring forecast). On the external
3.2% in 2006, falling to a below-potential rate of side, despite an acceleration of imports associated
2.7% in 2007. Due to the cost of the rebuilding effort with stronger domestic demand, net exports are also
following the hurricanes, the US government deficit is projected to support GDP growth. On the domestic
set to expand to around 5% of GDP in 2006. Despite side, strong projected profit growth, continued
an improved export performance, the current account corporate deleveraging and high capacity utilisation
deficit is projected to grow partly due to energy prices suggest that the increase in capital expenditures
and a deteriorating investment income balance. As should be sustained. Rising wages, asset prices and
also noted in chapter 6, there are several risks to the confidence should underpin consumption. Growth is
outlook, with short-term upside risks to private expected to gradually decelerate towards the potential
consumption growth if housing prices continue to rate, reaching 2.2% in 2006 and 1.8% in 2007. Core
experience strong growth and downside risks relating inflation is projected to turn positive around the

Table 1.1
International environment
(Real annual percentage change) Autumn 2005 Difference vs
forecast spring 2005
2002 2003 2004 2005 2006 2007 2005 2006
Real GDP growth
USA 1.6 2.7 4.2 3.5 3.2 2.7 -0.1 0.2
Japan -0.3 1.4 2.7 2.5 2.2 1.8 1.4 0.5
Asia (excl. Japan) 6.3 7.5 7.8 7.2 7.2 7.0 0.1 0.1
of which China 8.3 9.3 9.5 9.3 8.7 8.2 0.7 0.3
ASEAN4 + Korea (a) 5.4 3.9 5.0 4.4 5.1 5.2 -0.6 -0.2
Acceding/Candidate Countries 7.0 5.4 8.2 5.0 5.2 5.1 -0.1 0.2
CIS 5.4 7.9 8.3 6.8 6.9 6.4 0.3 1.1
of which Russia 4.7 7.3 7.1 6.0 6.3 5.8 0.0 1.0
MENA 1.8 3.0 8.6 5.2 5.1 4.8 -0.2 0.3
Latin America -0.6 1.9 5.5 4.0 3.6 3.6 0.1 0.0
Africa 3.0 3.0 4.3 5.0 6.0 5.5 -0.7 -0.1
World 2.8 3.8 5.2 4.3 4.3 4.2 0.1 0.2
World excl. EU25 3.3 4.5 5.9 5.1 4.9 4.6 0.3 0.3
World trade
World import growth 4.9 7.5 11.6 6.9 7.4 7.3 -1.3 0.0
World import growth excl. EU25 7.0 9.7 13.9 8.6 8.7 8.4 -0.5 1.0
Extra EU25 export market growth : : 12.1 9.0 9.0 8.4 -0.1 1.3

(a) ASEAN4 : Indonesia, Malaysia, Philippines, Thailand.

16
 Chapter 1
The world economy

beginning of next year. However, it should remain remain strong and to increasingly contribute to output
low in 2006, despite the narrowing of the output gap growth, supported by government efforts to boost
and high oil prices. The fiscal deficit is set to rural income and employment. On the external side, a
decrease over the forecast horizon, due to the continuation of strong export growth is likely in 2005.
improvement in the economic situation and fiscal Import growth is set to pick up during the remainder
consolidation, but will remain high. of 2005, as inventories have been run down, while
remaining below the 2004 level due to lower
For Asia (excl. Japan) as a whole, many countries investment growth and increased domestic supply of
witnessed a deceleration in export growth in early import substitutes. The resulting larger trade surplus
2005, partly explained by the cyclical downturn in the is forecast to lead to an increase in the current account
technology sector and slower import growth in China. surplus of about 2 pps of GDP in 2005. For 2006 and
In the second half of 2005, exports from Asia are 2007, the trade and current account surpluses are
generally expected to register strong rates of growth, expected to stay close to this higher level.
as the IT sector experiences a cyclical upturn and
exports to China rebound. At 7.2%, the autumn For the Commonwealth of Independent States
forecast for real GDP growth in the Asian region in (CIS) countries, economic growth is also expected to
2005 is slightly higher than that predicted in the be strong in the coming years. The Russian economy
spring (7.1%), primarily due to the upward revision of is set to expand by around 6% annually in 2005-2007.
Chinese growth from 8.5% to 9.3%. Overall, growth Given the projected substantial fiscal expansion in
is set to remain around 7% throughout the forecast 2006 and the potential for higher oil prices, however,
horizon. Growth in other Asian economies is there is an upside risk at least to the short-run outlook.
expected to stabilize, underpinned by more balanced Robust Russian demand growth and sustained high
growth of domestic demand and exports. Despite levels of commodity prices are likely to complement
steps towards greater exchange rate flexibility, which strong domestic demand growth in the other CIS
is expected to result in a gradual appreciation of non- countries. GDP growth in 2005 in these countries is
Japan Asian currencies and a transition toward more projected to reach over 8%, despite a significant
reliance on domestic demand as driver of growth, the slowdown in Ukraine, the second largest CIS
current account surplus for the region as a whole is economy. For the remainder of the forecast period,
expected to remain substantial for the foreseeable growth is expected to remain at about 8%.
future.
Economic growth in the Middle East and North
GDP growth in China remained buoyant in the first Africa region was strong in the first half of 2005 and
half of 2005, with an extension of the already- is projected to remain so throughout the forecast
observed trend of a modest shift in the composition of period, with real GDP growth rates of around 5% in
growth away from investment and towards net each forecast year. On the external side, the region’s
exports. Private consumption has continued to grow oil export volume is projected to grow by 3-4%
at a healthy pace, supported by rising rural income annually during the forecast period and non-oil export
and strong job creation. Growth is expected to growth should also remain strong for most countries.
moderate in the second half of 2005, averaging about Import growth is expected to be high, supported by
9.3% for 2005 as a whole, before slowing to 8.7% in oil-price-driven improvements in the terms of trade.
2006 and 8.2% in 2007. The growth slowdown is Trade and current account surpluses for the oil-
expected to come mainly from a deceleration in exporting countries are likely to improve substantially
investment spending in 2005, combined with a decline in 2005 and 2006, before stabilising in 2007.
in net export growth in 2006 and 2007. Investment
growth is foreseen to remain constrained by restrictive Latin America and sub-Saharan Africa are also
macroeconomic policies. In addition, the observed expected to experience sustained robust growth. Both
squeeze in corporate profit margins due to higher regions are benefiting from high prices of primary
commodity prices and wages should also help to commodities and the relatively strong world growth.
moderate investment spending, particularly since
retained earnings are a key source of investment
financing. Consumption growth is projected to

17
Chapter 2
The economies of the euro area and the EU
1. Growth decelerated in the first half of
2005

Renewed growth weakness in the first half of 2005 negative impulse from the external side in the euro
area.
Real GDP growth is estimated to slow down this year
to 1.5% in the EU and 1.3% in the euro area, from At the country level, the growth acceleration in the
2.4% and 2.1%, respectively, in 2004. This represents first quarter of 2005 was driven by the strong pick-up
a downward revision of 0.5 pp for the EU and 0.3 pp in Germany (0.8%, up from -0.1% in the previous
for the euro area with respect to the spring forecasts. quarter). The slowdown in the second quarter also
reflected a marked deceleration in Germany (0.0%)
Reflecting an external environment characterised by and France (0.1%). Noticeably, some countries even
soaring oil prices as well as a deceleration in world registered a contraction of economic activity in the
growth and trade, albeit from the vibrant expansion of course of the first half of 2005. Given these lacklustre
the previous year, economic activity in the EU performances and the fact that working-day
showed renewed weakness during the first half of adjustments may have exaggerated the extent of the
2005. Following a modest acceleration to 0.4% rebound in Germany in the first quarter of 2005, the
(q-o-q) in the first quarter of 2005, real GDP growth euro-area recovery was not able to regain much
slowed to 0.3% in the second quarter in the euro area, momentum in the first half of this year.
while it remained unchanged at 0.4% in the EU. The
latter outturn was one tenth of a percentage point Volatile contributions from net exports
lower than expected in the spring for the EU and two
tenths of a percentage point lower for the euro area. The turnaround observed in the contribution of net
exports to growth in the first half of the year resulted
Table 2.1 from the more pronounced swings in the evolution of
Quarter-on-quarter GDP growth in the euro area imports compared to exports. In the EU and the euro
area, both export and import growth had been on a
% change on previous period
downward path since the third quarter of last year.
GDP and components 04Q3 04Q4 05Q1 05Q2 This culminated in a contraction in the first quarter of
GDP 0.3 0.2 0.4 0.3 2005 that was about three times larger for imports
Consumption expenditure of households 0.2 0.8 0.1 0.1 than for exports.
Government consumption expenditure 0.4 -0.2 0.4 0.4
Gross fixed capital formation 0.5 0.3 -0.2 0.5 Accordingly, after having depressed growth during
Changes in inventories (% of GDP) 0.1 0.1 0.0 0.1
the second half of 2004, the contribution of net
Export* of goods and services 1.3 0.5 -0.5 1.8
exports turned positive in the first quarter of 2005 in
Import* of goods and services 2.4 1.4 -1.4 2.3
both the EU and the euro area (0.4 and 0.3 pp
Contributions to GDP growth (% points)
respectively). In the subsequent quarter, however,
Consumption expenditure of households 0.1 0.5 0.1 0.1 imports rebounded strongly, outpacing the pick-up of
Government consumption expenditure 0.1 0.0 0.1 0.1 exports. This pushed the growth contribution of net
Gross fixed capital formation 0.1 0.1 0.0 0.1
exports to zero in the EU and into slightly negative
Changes in inventories 0.4 0.0 -0.1 0.2
territory in the euro area (-0.1 pp). Nonetheless, due
Net exports -0.4 -0.3 0.3 -0.1
to the first-quarter outcome, the average contribution
* Incl. intra-euro area trade
from net exports in the first half of 2005 still came out
slightly positive in both the EU and the euro area.
In terms of the composition of growth, however, the
picture emerging from the quarterly national accounts While the downward trend in import growth observed
data is more encouraging. A weakening of domestic up to the first quarter of 2005 was in line with weak
demand (excluding inventories), following the final demand, the deceleration in the growth of
improvement in the second half of 2004, was behind exports may be attributed to the slowdown in world
the moderate level of growth in the first half of the trade growth and the previous appreciation of the
year. However, the data for the second quarter of euro. According to estimates by the CPB Netherlands
2005 showed signs of improving domestic activity. Bureau of Economic Policy Analysis, world trade
Indeed, a mild pick-up of domestic demand in the expanded at double-digit rates (y-o-y) during the first
second quarter of this year more than offset the half of 2004 and decelerated below 5% by the end of
the first quarter of 2005. In parallel, the euro-area real

21
Economic Forecasts, Autumn 2005

effective exchange rate (REER) rose in the last background of a marginally improving but still high
quarter of 2004 to its strongest level in the last six unemployment rate. The surveys also revealed
years, implying a considerable deterioration of euro- perceptions on the part of consumers of slightly
area price and cost competitiveness. However, world stronger price trends. Such perceptions are likely to
trade growth rebounded once again in the second have been influenced by the fact that the euro-dollar
quarter, to around 7% (y-o-y), while the REER has exchange rate movements provided less shelter than
depreciated since the start of the year, as the euro during 2004 against the sharp rises in energy prices
eased from the historical highs reached at the turn of experienced during the first half of 2005.
the year. Euro-area cost competitiveness improved by
about 2% in the second quarter of 2005 vis-à-vis the Graph 2.2: Private consumption and consume r
previous quarter, and by close to 3% compared to the confide nce , e uro are a
1.0 qoq % ch. 5
last quarter of 2004.
0.8 consumer confidence* (rhs) 0
Graph 2.1: Exports of goods an d re al e ffe cti ve e xch an ge
rate , e u ro are a (1999=100) 0.6
-5
3 qoq % ch. s.a. level 120 0.4
-10
115 0.2
2 -15
REER (rhs) 110 0.0

1 105 -0.2 -20

100 household consumption (lhs)
-0.4 -25
0 95 2001 2002 2003 2004 2005
90 * EU Harmonised Business and Consumer Surveys
-1
export s of goods 85
(lhs) Continued robust credit growth to households
-2 80
2001 2002 2003 2004 2005 The subdued growth of private consumption stands in
contrast with continued high level of liquidity and
At the country level, the performance in terms of cost robust credit growth in the euro-area economy.
competitiveness has continued to vary greatly, with Monetary data up to and including the third quarter of
Germany and the Netherlands seeing improvements 2005 confirmed the persistence of strong monetary
over the first two quarters of 2005, while Greece, dynamics observed since mid-2004. M3 growth
Spain, Italy and Ireland recorded further losses. increased to 8.5% in the year to September 2005.
This strengthening of monetary dynamics continued
Nearly stagnant private consumption to be driven, on the counterpart side, mainly by strong
expansion of credit to the private sector. This can be
Following a sharp rebound in the last quarter of 2004,
seen as a response to the historically very low levels
private consumption growth slowed markedly during
of interest rates in the euro area. The annual rate of
the first half of 2005 in both the EU and the euro area.
growth of Monetary and Financial Institutions (MFI)
It grew by merely 0.1% q-o-q in the first quarter,
loans to the private sector rose to 8.6% in the year to
down from 0.8% in the fourth quarter of 2004, in both
September 2005. The main contribution to this
regions. In the following quarter, private
expansion came from lending to households for house
consumption growth accelerated slightly to 0.2% in
purchase, which grew at an annual rate of 10.5% in
the EU, but remained unchanged in the euro area.
September 2005. These developments suggest that
The near stagnation of consumption growth during the ongoing robust credit expansion to households may be
first half of 2005 reflects a deterioration of consumer contributing to strong house price dynamics in several
confidence. According to the EU Harmonised parts of the euro area. Set against a combination of
surveys, consumers became more pessimistic about ample liquidity and strong credit growth, buoyant
employment prospects once again, against the housing markets might constitute a risk to the growth

22
 Chapter 2
The economies of the euro area and the EU

outlook through their underpinning of unsustainable Graph 2.4: House hold saving rate s, e uro are a and
price increases in property markets in some parts of Me mber State s
the euro area. However, it is still an open question 20 % of gross disposable income
whether buoyant housing markets could, instead, be a 2005 2006
18
source of wealth effects that would support
consumption at an opportune time in the cycle. 15

Graph 2.3: Loans to households, euro area 13

12 yoy % ch.
10

10 loans for house purchase

8
consumer credit
8 5
total BE DE EL ES FR IE IT NL AT PT FI euro
6 area
other lending
4
The weakness of capital formation in the first quarter
2
of the year and the subsequent upturn were essentially
attributable to marked swings in investment in the
0 construction sector. In the first quarter of 2005,
Q1-2003 Q3-2003 Q1-2004 Q3-2004 Q1-2005 construction investment in the euro area contracted by
Source: ECB
1.1%, the largest quarterly contraction in the last four
years. Bad weather conditions, in particular in
Moreover, the saving rate of households in the euro Germany, contributed to this outcome. Growth in
equipment investment, by contrast, picked up sharply,
area is set to decline slightly over the forecast horizon,
from -1.1% (q-o-q) in the last quarter of 2004 to 1.7%
from 14.4% in 2005 to 14.2% in 2007. Nevertheless,
the projected decline in the saving rate is not in the first quarter of 2005. In the subsequent quarter,
a moderation of equipment investment (to 0.8%) was
sufficient to reverse the rise observed at the beginning
accompanied by a marked rebound of construction
of this decade. However, developments at the
aggregate level mask divergences across countries. investment (to 1.3%).
Among the larger euro-area countries, for instance,
Graph 2.5: Investme nt in the e uro area
the saving rate is expected to remain broadly stable in
Italy and France, decline slightly in Germany and qoq % ch.
index
1.0 (2000=100) 105
more markedly in Spain.
investment (lhs)
0.5
Subdued investment spending 100

In both the EU and the euro area, investment spending 0.0

95
has, so far this year, failed to build on the momentum
-0.5
achieved in the second half of last year. Despite solid
earnings growth and supportive financing conditions, IFO business 90
-1.0 expectations (rhs)
the evolution of fixed capital formation was
considerably weaker than expected in the spring -1.5
85
forecasts. In the first quarter of 2005, the revised
national accounts data show no investment growth in -2.0 80
the EU and a contraction of capital spending by 0.2% 2001 2002 2003 2004 2005
in the euro area. In the subsequent quarter,
investment growth picked up to 0.6% in the EU and to Comparing the current performance with past
0.5% in the euro area. experience, it can be seen that investment spending
remains well below the average level of previous

23
Economic Forecasts, Autumn 2005

recoveries, even taking into account the fact that the issue has raised some concern. Further analysis
current upswing is relatively modest. Contrary to shows that, even though cyclical elements continue to
previous upturns, investment spending has not play a non-negligible role, a significant part of the
increased as a share of GDP so far. This suggests dispersion can be attributed to differences in trend
that, on top of the sluggishness of the recovery, growth rates across countries. The analysis also
investment may be held back by a number of longer- shows that the factors driving growth in this upturn
term factors related to the slowdown in total factor differ considerably across Member States.
productivity growth, particularly in the euro area, as
well as by labour force developments. Graph 2.7: GDP quarte r-on-quarte r growth, e uro are a
and se le cte d Me mbe r State s
Graph 2.6: Inve stme nt-to-GDP ratio in various re cove ries, .1.2 qoq % ch.
e uro are a
1.0 FR ES
103 Inv/GDP ( index=100 at trough) pps 10 0.8
Gap (rhs) 0.6
Current recovery
102 Average 4 previous recoveries 0.4
0.2
101 5
0.0

2.2
-0.2
100 1.4 euro area DE IT
1.1 -0.4
0.6
-0.6
99 0
Q1 Q2 Q3 Q4 Q1 Q2
-4 -3 -2 -1 0 1 2 3 4 5 6 7 8

Quarters from trough

Outside the euro area, most of the recently-acceded
Member States continued to experience growth rates
Sizeable growth differences across Member States above the euro-area average during the first half of
2005. This was particularly the case for the Baltic
Growth dispersion among euro-area countries, as
countries, as well as in the Czech Republic and
indicated by the gap between the highest and the
Slovenia. In contrast, among the largest of the
lowest growth rates, remained wide in the first half of
recently-acceded economies, Poland registered a
2005. For instance, in the second quarter of 2005,
slight contraction in the second quarter of 2005. The
economic activity contracted by 1.6% q-o-q in
performance was closer to, but still above, the EU
Finland, whereas it expanded by 1.2% in the
average in the three Member States that have been
Netherlands. A sizable dispersion in growth rates
members of the EU for a longer period of time:
was again particularly noticeable among the four
growth picked up to around 0.5% in Sweden and the
largest Member States, where the gap increased to
UK, and to a very strong 1.6% in Denmark in the
about 1.2 pps on average during the first half of 2005.
second quarter of 2005.
This followed a widening of dispersion last year,
when the gap rose from 0.3 pp in the first quarter of
2004 to a full percentage point in the final quarter of
that year. A peak in dispersion was registered in the
first quarter of 2005, when Italy registered a
contraction of 0.5%, while economic activity
expanded in Germany by 0.8%. In the subsequent
quarter, the gap narrowed somewhat, with Germany
and France showing almost flat activity, while Spain
and Italy recorded growth rates of 0.9% and 0.7%,
respectively. Although, as mentioned earlier, some of
the recent dispersion in growth rates is also likely to
be due to the effects of working-day adjustments, the

24
 Chapter 2
The economies of the euro area and the EU

Box 2.1: Some specificities behind the forecasts

Exchange rates 10 Member States (namely CZ, DE, ES, FR, IE, NL, AT, PL,
PT and SI) have been made using the new volume measure.
For currencies in ERM II, constant nominal exchange rates
are assumed. This means that the central rate of these Budgetary data
currencies against the euro will remain constant over the
forecast period. The currencies are: the DKK (Danish krone), Data for 2004 are based on government debt and deficit data
the EEK (Estonian kroon), the CYP (Cyprus pound), the transmitted by Member States to the European Commission
LVL (Latvian lats), the LTL (Lithuanian litas), the MTL in September 2005. In publishing these data, Eurostat has
(Maltese lira) and the SIT (Slovenian tolar). Constant real indicated that, for certain Member States (the Czech
exchange rates (that is nominal rates adjusted for changes in Republic, Greece and Portugal), it “has reservations on the
GDP deflators) are assumed for the CZK (Czech koruna), the quality of the data”. For 2006, budgets adopted or presented
HUF (Hungarian forint), the PLN (Polish zloty), the SKK to parliaments and all other measures known in sufficient
(Slovakian koruna), the SEK (Swedish krona) and the GBP detail are taken into consideration. For 2007, the "no-policy
(sterling). Constant real exchange rates are also assumed for change" assumption used in the forecasts implies the
non-EU currencies. extrapolation of revenue and expenditure trends and the
inclusion of measures that are known in sufficient detail at
The reference period used for the exchange rate constancy the time of the completion of the forecast.
assumption is the fourth quarter of 2005, calculated on the
basis of historical values from 19 October to 2 November The general government balances reported by Member States
2005. The average USD/EUR rate for the fourth quarter of to the European Commission may be different from those
2005 was 1.20 and the JPY/EUR rate 138.9. This leads to published in the national accounts, because of an amendment
implied average USD/EUR rates of 1.25 in 2005, 1.21 in to ESA95. According to Regulation (EC) N° 2558/2001 on
2006 and 1.22 in 2007, and average JPY/EUR rates of 136.7, the reclassification of settlements under swap agreements
137.3 and 135.7 in 2005, 2006 and 2007 respectively. and forward rate agreements, interest flows under swaps
have been reclassified from “income property” to “financial
Interest rates account”. However, the Regulation states the need for
specific treatment of these flows for data transmitted under
Short-term interest rates are set in order to reflect the price the excessive deficit procedure (EDP), allowing for interest
stability objective of monetary policy. Long-term interest expenditure to include swaps, contrary to ESA95 new rules.
rate assumptions are based on developments in short-term In the forecasts, it is the EDP definition of the general
rates and an assessment of economic conditions. Attention is government balance that is presented.
paid to international financial linkages, market expectations
and budgetary developments. The revisions in GDP following FISIM allocations (financial
services indirectly measured) will only be taken into
Commodity prices consideration for the calculations of the deficit- and debt- to-
GDP ratios in spring 2006, although FISIM allocations have
Commodity prices are forecast taking into account market
been implemented by 10 Member States already (namely
conditions. In the case of oil prices special attention is paid
DK, DE, EE, ES, FR, IE, NL, AT, FI and SI).
to futures prices. Prices for Brent oil are, accordingly,
projected to be 55.0 USD/bl in 2005, 61.4 USD/bl in 2006 Calendar effects on GDP growth and output gaps
and 60.3 USD/bl in 2007. Prices of primary commodities,
excluding fuels, are assumed to increase by 7.4% in 2005, Last year was a leap year. Compared to the average number
1.3% in 2006, and to decline by approximately 1% in 2007. of working days, there were 2.8 additional working days in
In 2005, the prices of all groups, except for agricultural 2004. This translates to an estimated impact of 0.24 pp on
products, are expected to increase compared to 2004. the GDP growth rate for the euro area in 2004. On the other
hand, for 2005, the effect is estimated at a negative 0.13 pp.
Chain linking Annual GDP figures are not adjusted for the number of
working days, while quarterly national accounts figures of
In order to improve the accuracy of GDP growth estimates,
most countries are. The calculation of potential GDP, from
National Accounts have moved to ‘chain linking’ in several
which the output gap is derived, does not involve any
Member States to incorporate more up-to-date price weights.
adjustment for the number of working days in the leap year,
Chain-linking refers to an alternative volume measure using
because this is considered to be temporary, which should not
the previous year’s prices (instead of prices from a given
affect the cyclically-adjusted balances.
base year) which are then ‘chained’ together. Forecasts for

25
2. Financial conditions remain supportive
of growth in the EU

Financing conditions have improved Corporate balance-sheet restructuring advanced

Financing prospects and costs in the euro area, which Investment activity in the euro area has been sluggish
were already favourable in the spring, have improved for several years amid a gradual decline in the net
further, for both corporations (a term used in this financial position of non-financial corporations to less
section for non-financial corporations) and than 0.5% of GDP in 2004, as suggested by financial
households. However, these favourable financing accounts data. The decline in net lending reflects
conditions have not yet triggered a significant pick-up weak demand and can be explained as a reaction to
in investment or private consumption. the accumulation of substantial corporate debt in the
period 1999-2001.
Interest rates on bank lending and direct financing
remain at very low levels, in both nominal and real Graph 2.8: Ne t financial position of non-financial
terms; although nominal market-based interest rates corporations, e uro are a
have risen in recent weeks. Interest rates on bank
% of GDP
lending, which is still the predominant source of 0.0
external funding for both sectors, have declined -0.5
steadily since 2003 and have remained at very low
-1.0
levels in recent months. The decline in interest rates
has been pronounced for corporate and mortgage -1.5

lending, while rates for consumer credit retreated -2.0

more modestly. -2.5

Further evidence of increasingly favourable financing -3.0

conditions can be derived from the ECB bank lending -3.5
survey, which shows a continuous amelioration in the -4.0
terms of credit conditions for both the corporate sector 96 97 98 99 00 01 02 03 04
and households. More recently, however, the banks’
credit stance toward the two sectors has begun to
diverge, remaining on an easing stance in respect of As the global economy slowed in the aftermath of the
companies but reverting toward “neutral” in respect of 2000 stock market correction, the level of
households. In addition to the decline in interest rates accumulated debt was assessed as being too high and
on bank lending, financing conditions in corporate companies have spent much of the period since 2002
bond markets also remain favourable due to the in balance-sheet restructuring.
continued subdued level of interest rates and the fact
that corporate bond spreads remain close to historical Graph 2.9: Corporate de bt to GDP, e uro are a
lows.
% of GDP*
Euro-area equity prices have been on a sustained 64
upward trend since the end of April 2005, having 62
fluctuated in a fairly narrow range in previous 60
months. However, evidence suggests that companies
have yet to return to equity issuance as a major 58
external funding option. While there is considerable 56
variation across Member States, the euro-area equity
54
markets – in line with broader European and Japanese
share prices - have tended to outperform US markets. 52
Robust global growth, improved profitability outlook, 50
increasing dividend payments and share buyback 99 00 01 02 03 04 05
activity and increased merger and acquisition activity
are factors that have contributed to the increases in Source: ECB; * 05Q2 estimated
equity prices.

26
 Chapter 2
The economies of the euro area and the EU

More specifically, companies have made use of low seems to be recovering. Lastly, rising equity prices
interest rates to re-finance existing debt, while also suggest a brightening in the business outlook and
simultaneously limiting their expenditure on physical the most recent ECB bank lending survey predicts
investment. As a result, the level of accumulated higher loan demand later this year. However, given
corporate debt has stabilised at about 62% of GDP the still-high level of corporate debt, companies
since 2002. remain vulnerable to any negative economic shock,
insofar as further repair of balance sheets could then
As a result of lower interest rates and balance-sheet become necessary with negative implications for
restructuring, companies have reduced their debt- investment.
servicing costs, with net interest payments to the
banking sector declining to slightly over 1.5% of GDP Graph 2.11: Total exte rnal funding de mand of the
in the second quarter of this year. This development corporate se ctor
is also mirrored in the growing accumulation of cash 12 yoy % ch.
balances within the corporate sector. In that context,
the question arises as to what the corporate sector is 10
planning to do with those funds: dividend payouts and
share buy backs and/or preparing forthcoming 8
investment and spending decisions.
6
If the latter option is chosen, the improvement in
company balance sheets since 2001 has laid the 4
ground for a future acceleration in investment
expenditure and recent developments are encouraging 2
in this regard.
0
Graph 2.10: Corporate se ctor e xposure , e uro are a 98 99 00 01 02 03 04
12 yoy % ch. % of GDP 1.80 Source: ECB; series includes debt and equity financing

10 1.75
The euro-area household sector
8 1.70
In contrast to the corporate sector, and as mentioned
6 1.65 in section 1 of this chapter, euro-area households have
responded to favourable financing conditions in recent
4 1.60
years by accumulating debt. Bank lending to
2 1.55 households has picked up progressively since the
beginning of 2003, accelerating to an annual rate
0 1.50 slightly above 8% in the first three quarters of 2005.
99 00 01 02 03 04 05
Change in bank loans to corporations (lhs) Pronounced growth in mortgage lending, which
Change in bank deposits from corporations (lhs) represents nearly 70% of total outstanding loans to
Corporate sector net interest payments to banks/GDP (rhs)
households, has been the main contributor to the rise
Source: ECB
in total lending to households. However, growth in
consumer credit has also accelerated from 2% at the
For example, mainly as a result of a pick-up in bank end of 2003 to around 7% in 2005. On this basis, the
loans, there has been a narrowing in the gap between financial outlook for the household sector is unclear.
y-o-y growth in non-financial corporate deposits at While a positive wealth effect might be expected from
banks and the corresponding growth of bank loans to the recent rise in the price of housing and other assets,
the sector. In August 2005, the ratio of outstanding increased debt liabilities are a cause for concern.
bank loans to the non-financial corporate sector and
the corporate sector's bank deposits was about 3:1. In
addition, total demand for external funding – although
still markedly below earlier expansionary periods –

27
Economic Forecasts, Autumn 2005

Graph 2.12: Composition of outstanding bank loans to 2004. In all three countries, household debt is at a
house holds in August 2005, e uro area very high level, mostly secured against housing.
While corporate and household debt levels remain
relatively low in the recently-acceded Member States,
17.6 % 13.3 % many of these are experiencing an accelerated
financial convergence, as evidenced by the strong
pace of credit growth to the private sector. While
strong credit growth is expected to boost economic
performance, it also poses some risks such as
financing an unsustainable rise in demand,
69.1 % vulnerability to exchange-rate or interest-rate shocks
and inefficient credit allocation. Consequently, the
Consumer credit challenge for affected Member States is to ensure the
Lending for house purchase soundness of the financial sector so as to deliver
Source: ECB Other lending growth supportive financing conditions in the medium
term.
In recent years, household debt has risen from about
45% of GDP in 1999 to about 56% in 2005 and from Graph 2.14: Cre dit to the private se ctor, some
re ce ntly-acce de d Me mbe r State s
about 70% to 84% of disposable income over the
same period. Most of this accumulated debt is 60 yoy % ch.
secured against housing, leaving households
vulnerable to adverse developments in house prices 50
2001
and mortgage financing costs – with potentially 40 2002
negative implications for expenditure on private 2003
consumption. 30
2004*
20
Graph 2.13: House hold debt to GDP and to disposable
income , e uro are a 10
57 % % 84
0
55 82 CZ EE HU LV LT PL SK SI
80 Source: IMF *Some 2004 figures are estimates
53
78
51
76
49
74

47 72

45 70
99 00 01 02 03 04 05
Debt/GDP (lhs) Debt/Disposable income (rhs)
Source: ECB

Developments in non-euro-area Member States

Despite accumulated non-financial corporate debt of
78% of GDP, no significant problems have been
reported at an aggregate level in the United Kingdom.
Corporate debt levels in Sweden continue to decline,
falling to 65% of GDP in 2004 from 70% in 2003,
while corporate debt in Denmark was about 85% in

28
3. A gradual return to potential growth
(with alternative risk scenarios)

A gradual return to potential in 2006 Graph 2.15: Growth contributions, e uro are a

2.5 yoy % ch.

While growth has disappointed in 2005 – annual GDP
change in inventories GDP
growth is estimated to be 1.3% in the euro area and
2.0 gross fixed
1.5% in EU – the conditions remain in place for a capital
return to potential at the start of 2006 in the absence formation
1.5
of further shocks. The forecast envisages annual GDP government
growth of 1.9% in the euro area and 2.1% in EU in consumption
1.0
2006, followed by a further improvement to 2.1% and
2.4%, respectively, in 2007. private
0.5 consumption
Extending the pattern which emerged in the second
quarter of this year, the rebound is driven almost 0.0
exclusively by a strengthening of domestic demand in net exports
the euro area and the EU, with a marginal contribution -0.5
from the external sector. 2005 2006 2007

Within domestic demand, the growth impulse stems The projected pick-up in private consumption over the
mainly from a strong acceleration in gross fixed forecast horizon is more gradual than in the case of
capital formation, especially next year. The positive investment. The fact that euro-area consumer
outlook for investment is supported by a marked confidence remains below its long-term average and
recovery in business confidence, especially in the below the level recorded at a similar stage of the
manufacturing sector, in recent months. The case for recovery in previous cycles supports such a profile.
a strengthening of investment growth is underpinned However, good progress in the implementation of
by favourable financial conditions, improved balance structural reforms in some countries has resolved
sheets, wider profit margins, and an increasing need some uncertainties, which have acted as a brake on
for replacement investment. consumption in the past. And although purchasing
power prospects of consumers may be dented by

Table 2.2
Composition of growth - EU25
(Real annual percentage change) Autumn 2005
forecast
2004 2000 2001 2002 2003 2004 2005 2006 2007
bn Euro curr. prices % GDP Real percentage change
Private consumption 6027.7 58.3 3.4 2.0 1.6 1.6 2.1 1.6 1.6 2.1
Government consumption 2141.5 20.7 2.3 2.1 2.9 2.1 1.3 1.2 1.9 1.7
Gross fixed capital formation 2001.3 19.4 4.8 0.5 -1.2 0.8 3.0 2.3 3.5 3.6
Change in stocks as % of GDP 40.4 0.4 0.4 -0.1 -0.3 -0.1 0.3 0.5 0.5 0.5
Exports of goods and services 3735.1 36.1 12.0 3.6 1.7 1.8 6.7 3.9 5.3 5.3
Final demand 13945.9 134.9 5.6 1.9 1.2 1.7 3.6 2.3 3.0 3.2
Imports of goods and services 3608.5 34.9 11.1 2.2 1.2 3.2 7.0 4.2 5.2 5.3
GDP 10337.4 100.0 3.8 1.9 1.2 1.2 2.4 1.5 2.1 2.4
GNI 10317.2 99.8 3.9 1.7 1.2 1.1 2.5 1.7 2.1 2.4
p.m. GDP euro area 7698.7 74.5 3.8 1.9 0.9 0.7 2.1 1.3 1.9 2.1
Contribution to change in GDP
Consumption 2.5 1.6 1.5 1.3 1.5 1.2 1.3 1.6
Investment 1.0 0.1 -0.2 0.2 0.6 0.4 0.7 0.7
Inventories 0.0 -0.4 -0.3 0.2 0.3 0.0 0.0 0.0
Exports 4.0 1.3 0.6 0.7 2.4 1.5 2.0 2.1
Final demand 7.4 2.7 1.6 2.3 4.8 3.1 4.1 4.4
Imports (minus) -3.6 -0.8 -0.4 -1.1 -2.4 -1.5 -1.9 -2.1
Net exports 0.4 0.5 0.2 -0.5 0.0 0.0 0.1 0.1

29
Economic Forecasts, Autumn 2005

higher energy prices, the projected acceleration in job would affect both financial markets and the real
creation and fall in unemployment should provide a economy.
boost to private consumption expenditure in 2007.
Graph 2.16: Une mployme nt and private consumption, e uro are a
Risks and alternative scenarios
-1.5 pps yoy % ch. 4.0
The risks on the external side are tilted to the
3.5
downside. -1.0 Forecast
3.0
World demand could be stronger if the projected -0.5
2.5
deceleration of growth in the US and Asia is less than
0.0 2.0
anticipated. Indeed, the resilience of the US and
1.5
emerging Asian economies has continued to surprise 0.5
forecasters in recent years. Moreover, the behaviour 1.0
1.0
of oil-exporting countries should also be considered. 0.5
Should these countries choose to spend a larger share 1.5 0.0
of their additional income from oil on imports, the EU 94 95 96 97 98 99 00 01 02 03 04 05 06 07
should continue to be well placed to benefit from this change in the unemployment rate, inverted scale (lhs)
extra demand. The EU has large export-market shares private consumption (rhs)
in OPEC, CIS and Norway, in particular.
The risks on the domestic side appear to be more
In view of the sharp rise in oil prices this year, the balanced.
possibility of even higher prices than projected in the
central scenario cannot be ruled out. The downside Several factors pose a risk to the outlook for private
risk of higher oil prices is also related to the consumption. Higher oil prices represent an
uncertainty about the impact of higher oil prices. important threat to real disposable income. On the
Business and consumer confidence could be more other hand, consumer confidence could improve by
negatively affected by a percentage-point rise in the more than expected, due to better labour market
oil price at higher price levels. These so-called “non- conditions and a reduction of uncertainty over future
linear” effects could then lead to a stronger adverse income streams, as a result of ongoing and past
impact on the economy than already observed. structural reforms. Such an increase in confidence
could trigger the release of the pent-up demand that
It must also be acknowledged that global current has accumulated among private consumers. This
account imbalances continue to rise. Accordingly, a could, in turn, be financed through a reduction in the
disorderly correction of global imbalances (with much savings rate. As already mentioned in the first section
volatility in financial markets) cannot be ruled out. of this chapter, the effect of the buoyant housing
The new Chinese exchange rate policy may be seen as market in some Member States is difficult to predict.
the first of a series of steps that would lead towards a Unanticipated housing wealth effects could boost
more broad-based sharing of the burden of the consumption, while a correction of the over-valuation
correction of global imbalances. But this step alone is of housing could work in the opposite direction, with
not sufficient to alleviate fears that a large share of the negative confidence effects for households.
burden of adjustment would fall on European
exporters in the event of a disorderly unwinding of the In the case of investment, positive risks are linked to
imbalances. stronger growth of specific housing markets, stronger-
than-expected external demand or higher productivity
Finally, a possible abrupt shift in investor as a result of past IT-investments and past reforms.
expectations regarding global economic growth and Negative risks include higher oil prices, a
inflation could lead to a severe correction in some disappointing development of overall demand and
asset prices. The current level of asset prices suggests entrenched low-growth expectations.
that a sustained economic recovery and low inflation
are fully discounted. Revisions in these expectations Overall, risks are tilted somewhat to the downside in
this forecast.

30
 Chapter 2
The economies of the euro area and the EU

Graph 2.17: Profit margins and inve stme nt in e quipme nt,

e uro are a
12 yoy % ch. yoy % ch. 1.4
Corporate profit
10 margins* (rhs) Forecast 1.2
1.0
8
0.8
6
0.6
4 0.4
2 0.2
0.0
0
-0.2
-2
-0.4
-4 -0.6
Investment in equipment (lhs)
-6 -0.8
95 96 97 98 99 00 01 02 03 04 05 06 07
*approximated by the GDP deflator minus unit labour cost

It is worth exploring what the implications would be,

should some of the risks materialise. Accordingly,
two alternative scenarios were simulated and these are
summarised in the box below. In the worse-case
scenario, GDP growth in the euro area and the EU
would be reduced by around ½ pp in both 2006 and in
2007, compared to the central scenario. In the better-
case scenario, GDP growth in the euro area and the
EU would be raised by 0.3 and 0.1 pp, respectively, in
2006 and 2007.

31
Economic Forecasts, Autumn 2005

Box 2.2: Simulation of alternative scenarios

A worse-case scenario was simulated by applying a number 2.4% to 2.0% in 2007.
of simultaneous shocks in the QUEST model. The shocks
include: The outcome may appear somewhat surprising, as global
growth falls to 3-3½% without implying a larger impact for
(1) An additional increase in oil prices to a “permanent” 80 the EU. However, it should be noted that, in the QUEST
USD/barrel level from the fourth quarter of 2005 onwards; model, interest and exchange rates are endogenous, while
confidence indicators are not explicitly modelled. The
(2) A similar rise in natural gas prices with a six-month lag; benign results reflect the reduced oil intensity and the
relatively low share of extra-EU exports of goods (of around
(3) A substantial reduction in private consumption growth in
10% of GDP).
the US: by 1.2 pps, which could be linked to a marked
slowdown in the housing market and a consequent increased A better-case scenario was simulated by applying the
propensity to save. In addition, a reduction in US investment following shocks to the model:
by 1.8 pps is also assumed.
(1) An unwinding of pent-up consumer demand in Germany,
Furthermore, higher oil prices and the reduced demand from with the savings rate falling in 2006 and 2007, as consumers
the US are also assumed to have an impact on the rest of the become more optimistic about the future. This implies that
world. Accordingly, GDP growth would be cut by around consumer spending in Germany would be raised (above the
1¼ pps in Asia, while growth in other regions (except OPEC, levels in the central scenario) by 1.2% in 2006 and by 1.8%
CIS and Norway) would be reduced by 1¾ pps. in 2007; and
The combined effects of the shocks described above is a (2) a spill-over of some of this optimism to other Member
marked slowdown in US GDP growth (which is lowered by States, implying that private consumption in the EU would
1.1 pps compared to the central scenario) and in world be lifted above the central scenario by 0.6 and 0.9%,
growth (excluding EU15) by 1.2 pps in 2006 and a further respectively, in 2006 and 2007 (0.7 and 1.0%, respectively,
0.9 pp in 2007. This would cause global growth to fall to in the euro area).
between 3 to 3½%.
A decline in savings should be associated with a rise in real
Higher oil prices and reduced global growth would limit the interest rates to restore the equilibrium between savings and
EU and the euro-area GDP growth as well. Overall, GDP investment in the QUEST model. However, under the
growth would be reduced by around ½ pp in both 2006 and assumption of an accommodating monetary stance, the
in 2007 in the euro area and the EU25. This is mainly due to negative impact on investment would be negligible.
the impact of higher oil prices, which reduces growth by
around 0.3-0.4 percentages points in both years. This more optimistic scenario pushes GDP growth in
Germany higher than the central scenario by 0.5 pp in 2006
Table 2.3 and 0.2 pp in 2007. For the euro area, and the EU as a
GDP growth differentials in the alternative (worse-case) vs. the
whole, GDP growth would be 0.3 and 0.1 pp higher,
central scenario
respectively, in 2006 and 2007.
2005 2006 2007

USA -0.1 -1.1 -0.7

Table 2.4
GDP growth differentials in the alternative (better-case) vs. the
Japan -0.1 -0.8 -0.7
central scenario
Other Asia (incl. China, India) -0.2 -1.2 -0.8
Latin America -0.1 -1.8 -1.2 2006 2007
Rest of the world -0.1 -1.8 -1.4 Germany
Recently-acceded Member States -0.1 -0.6 -0.5 Consumption 1.2 0.6
World GDP (excl. EU15) -0.1 -1.2 -0.9 GDP 0.5 0.2
Euro area -0.1 -0.6 -0.5 Euro area
EU15 -0.1 -0.6 -0.4 Consumption 0.7 0.3
EU25 -0.1 -0.6 -0.4 GDP 0.3 0.1
EU25
Compared to the central scenario, the alternative scenario Consumption 0.6 0.3

would imply a downward revision of GDP growth from GDP 0.3 0.1

1.9% to 1.3% in 2006 and from 2.1% to 1.6% in 2007 in the

euro area. Similarly, EU GDP growth would be cut back
from the central scenario of 2.1% to 1.5% in 2006 and from

32
4. Improvement in labour market
conditions

Limited increase in long-term unemployment in Employment expectations suggest a pick-up

the downswing
Looking ahead, employment expectations, as reported
Both the euro-area and the EU labour markets have in the Harmonised EU Business and Consumer
been markedly less influenced by the recent economic Survey, improved in October. While the volatility of
downswings and upswings, compared to earlier monthly indicators in general suggests that they
cycles. Although the labour market conditions should be interpreted with due caution, an analysis of
worsened with the usual lag to the economic the three-month moving average confirms the
slowdown in 2001-2003, the rise in the annual improvement (when comparing August-October to the
unemployment rate was limited to one percentage previous three months).
point, compared to some three percentage points in
the early 1990s. In this cycle, unemployment peaked At the sectoral level, expectations are indicative of a
at 8.9% of the labour force in the euro area in the further expansion of employment in the services
second quarter of 2004. sector and a possible further deterioration in industry,
although activity is expected to expand in both
Several factors bear witness to the structural sectors. This would be in line with the sectoral
improvement in the functioning of the labour market, employment trends discussed above. Nevertheless, it
including a decline in long-term unemployment rates should be noted that, when comparing companies’
and in the average duration of unemployment spells, expectations and their assessment of the recent past,
as well as an improvement in the matching process. employment growth has recovered more slowly in the
services sector than the expectations would suggest.
Weak labour demand so far in the upswing
Overall, the survey results thus point to a modest
Euro-area employment growth accelerated to 0.2% in improvement in the employment outlook, although a
the second quarter of 2005 (q-o-q) up from 0.1% in considerable acceleration of employment creation in
the first quarter. The still relatively modest the second half of 2005 appears unlikely. This is
employment growth can be partly explained by the consistent with the improvement noted in consumers’
labour hoarding, which took place during the unemployment expectations in the period August-
economic downturn and created a ‘reserve’ of October compared to May-July.
employees in many enterprises.
Unemployment at 8½% in September 2005
Table 2.5
Sectoral employment growth in the euro area In view of the moderate employment creation in
(Quarterly percentage change, seasonally adjusted) 2003-2004, the standardised unemployment rate
2003 2004 04Q3 04Q4 05Q1 05Q2 stabilised at around 9% of the labour force in both the
Whole economy 0.3 0.6 0.2 0.2 0.1 0.2 euro area and the EU in 2004. In line with the pick-
Agriculture -1.9 -0.7 0.1 -0.4 -1.2 0.1 up in employment this year, a certain decline in the
Industry -1 -0.9 -0.1 0 -0.6 0.1
unemployment rate has been recorded: in September
Services 0.9 1.2 0.3 0.3 0.4 0.3
2005, the unemployment rate was 8.4% in the euro
Source: ECB
area and at 8.6% in the EU.
The overall development of job creation masks
Differences continue to be sizeable across Member
significant differences across Member States and
States, with unemployment ranging from around 4½-
across sectors. In the euro area, employment creation
5% in Denmark, Ireland, the Netherlands, Austria and
of 2½-3% was recorded in Greece, Spain, Ireland and
the United Kingdom to some 9-10% in Germany,
Luxembourg in 2004, whereas a decline was noted in
Spain, Greece, France and Latvia and more than 16%
France and, in particular, the Netherlands (-1½%). At
in Slovakia and Poland in September 2005.
the sectoral level, net job creation continued to be
limited to the services sector, while employment has Improving employment outlook
been falling in the agriculture and industry sectors
(besides the moderate pick-up noted in industry in the Employment is expected to increase by 1% in the euro
most recent quarter). area and 0.9% in the EU in 2005, before accelerating

33
Economic Forecasts, Autumn 2005

marginally to 1.2% in 2006 and 1.1% in 2007 in the further enhance the importance of the services sector.
euro area, and to 1.0% in both years in the EU. With lower labour productivity on average in the
services sector, GDP growth should also tend to be
The employment outlook for 2005 may appear high in accompanied by a greater increase in employment.
view of the weaker outlook for economic activity
(both compared to 2004 and to the spring forecast). Graph 2.18: Employment growth and une mployme nt rate
The combined effect of the current GDP growth and in the euro area
3 12
the employment forecasts is an expected strong yoy % ch.
employment (lhs)
%

decline in labour productivity growth, from 1.4% in forecast

2004 to 0.3% in 2005 in the euro area and from 1.8% 2 11
to 0.6% in the EU.
1 10
Specific factors behind the improvement
Employment growth in 2005 is, however, partly 0 9
explained by a number of other factors in some
Member States.
-1 8
In Spain, the apparent strong demand for labour is unemployment rate (rhs)
further reinforced as a consequence of the -2 7
regularisation of immigrant workers. It is estimated 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
that the latter will boost the number of employed
persons by 700,000, even if the rise in full-time
equivalents would be substantially lower, as many Unemployment diminishing to around 8% in 2007
immigrants tend to occupy temporary jobs. In Italy, Employment is expected to increase by 1.4 million
in spite of almost flat GDP growth this year, the persons this year in the euro area, while the influx to
regularisation of immigrant workers and the the labour force limits the decline in the number of
continuing effect of labour market reforms introduced unemployed to 0.3 million persons. It is thus
since the 1990’s has led to a further increase in anticipated that the euro-area unemployment rate will
employment. As a result, measured labour fall to 8.6% in 2005 (from 8.9% of the labour force in
productivity growth turns negative again in Italy in 2004). Similarly, the unemployment rate in the EU is
2005. On the other hand, weaker-than-earlier- projected to improve by 0.3 pp this year (to 8.7%).
expected economic activity is foreseen to dampen
(regular) employment growth in Germany, France Over the remainder of the forecast period, euro-area
and, in particular, the Netherlands. employment is expected to grow by 1.6 million per
year in both 2006 and 2007, facilitating a further
Job creation also arises from measures taken to decline in unemployment. Overall, employment is
combat unemployment and stimulate employment in expected to increase by 4½ million persons in 2005-
some Member States. In Germany, for example, job 2007 in the euro area and by 6 million persons in the
creation in 2005 stems partly from jobs with reduced EU.
payroll taxes (“mini-jobs”) and jobs for benefit
recipients (“one-euro-jobs”). Both measures raise The unemployment rate is thus foreseen to fall further
part-time employment. The former are created in the to 8.4% in 2006 and to 8.1% in 2007 in the euro area.
regular labour market, whereas the latter are provided A decline is also expected in the EU with the
and remunerated by the public sector. As with the unemployment rate declining to 8.5% and 8.1%,
regularisation of immigrants, full-time equivalent respectively. This development would correspond to
employment growth from this type of measure is more a reduction in number of unemployed persons by 0.8
limited. million in the euro area and by 1.6 million persons in
the EU over the whole forecast period.
As the economic upswing accelerates, investment-led
GDP growth is set to be complemented by a gradual The marked differences in unemployment rates
pick-up in private consumption. This is likely to recorded across Member States will remain, even if

34
 Chapter 2
The economies of the euro area and the EU

some convergence can be noted. This follows from average wage increases were higher than might be
the expected favourable development in the two expected from the weak economic situation and
Member States with the highest unemployment rate, cannot be justified by a rapid increase in labour
Poland and Slovakia, where the unemployment rate productivity. Wage growth in these countries could,
continues to fall over the forecast period. Within the to a certain extent, be explained by the ongoing
euro area, the relatively wide unemployment rate impact of multi-annual wage agreements. Wage
range is maintained: from 4-5% in Ireland, the increases in Italy (of close to 3%) also appear to be
Netherlands and Austria to around 9% in Germany somewhat on the high side in view of the marked
and France and almost 10% in Greece. deceleration in GDP growth in 2005 and negative
growth in labour productivity.
Different wage trends across Member States
Increasing divergence in competitiveness
On average, wage growth, as measured by
compensation of employees per head, remained Persistent and relatively high wage increases,
relatively unaffected by the economic slowdown in combined with low (or even negative) labour
2001-2003. Wage growth began to moderate more productivity growth, have given rise to
markedly only this year. Euro-area wage growth is competitiveness problems for some Member States.
expected to ease to 1.8% in 2005, 2.0% in 2006,
before edging up to 2.4% in 2007. Nominal unit labour cost is estimated to have risen by
around 2½-3% in Spain, Portugal and Finland, and by
Wage trends exhibit considerable differences across 3% or more in Greece, Ireland and Italy in 2005.
Member States, with wage growth being markedly Taking into account real effective exchange rates, unit
higher in (most of) the recently-acceded Member labour cost rose by around 1-2% in Ireland, Italy and
States, causing wages in the EU to rise by around 2½- Finland. This has had a negative impact on export
3%. Differences are also pronounced within the euro performance of these countries, particularly in the
area, with projected wage growth ranging from case of Italy. On the other hand, the pronounced
around 0% in Germany this year to around 5% or wage moderation in Germany, as reflected in falling
more in Greece and Ireland. unit labour costs in 2004-2006, has provided a
substantial impetus to exports, thus contributing to
Wage growth seems to reflect labour market tightness rising export market shares.
(or lack thereof) relatively well in most Member
States in 2005. This explains the wage increases of
above 3% in Greece, Spain, Ireland and Luxembourg,
as well as the decline in wages in Germany.
However, in the cases of Portugal and Finland,

Table 2.6
Labour market outlook - EU25
(Annual percentage change) Autumn 2005 Difference vs
forecast spring 2005
1991-95 1996-00 2004 2005 2006 2007 2005 2006
Population in working age (15-64) : : 0.5 0.4 0.4 0.4 0.1 0.1
Labour force : : : 0.7 0.7 0.7 0.1 0.1
Employment : 1.2 0.6 0.9 1.0 1.0 0.2 0.2
Employment (change in million) : 10.1 1.2 1.9 2.1 2.0 0.6 0.5
Unemployment (levels in millions) : 19.3 19.5 19.0 18.5 17.9 -0.3 -0.3
Unemployment rate (% of labour force) : 9.5 9.0 8.7 8.5 8.1 -0.3 -0.2
Labour productivity, whole economy : 1.7 1.8 0.6 1.1 1.4 -0.7 -0.4
Employment rate (a) : : 63.0 63.4 63.8 64.1 0.0 0.1
p.m. Employment euro area -0.2 1.6 0.7 1.0 1.2 1.1 0.3 0.3

(a) As a percentage of population of working age. Definition according to structural indicators.

35
5. Headline inflation lifted by rising oil
prices

After falling below 2% in the beginning of 2005, the manufacturing goods and processed food and, to a
annual rate of headline inflation in the euro area lesser extent, in services.
fluctuated around 2.1%, before rising to 2½% in
September-October. The stickiness of euro-area Graph 2.19: He adline and core inflation, euro area
inflation mainly reflects the rise in energy inflation,
triggered by soaring oil prices. Since the end of last 3.0 yoy % ch.
year, crude oil prices have risen by more than 60% in
euro terms.
2.5
One rule of thumb suggests that a 10% increase in oil
prices leads to a rise of 1½ pps in the annual rate of
change in consumer prices of energy within about half 2.0
a year. As energy has a weight of roughly 8-9% in the
overall HICP basket, this translates into a direct
increase in consumer price inflation of 0.1-0.2 of a 1.5
total HICP
percentage point. Compared to an annual rate of 4.5%
core inflation
in 2004, energy HICP inflation averaged 9.1% in the
nine months to September 2005. This resulted in a rise 1.0
03 04 05
in the contribution of energy to overall inflation from
0.4 pp to 0.7 pp over the corresponding period.
Price rises in industrial goods have added just 0.1 pp
Largely reflecting fluctuations in oil prices, among the to overall inflation this year. Strong competition in
main components of headline inflation in the first nine the tradable goods sector, coupled with subdued
months of 2005, the highest annual rates of inflation growth in the euro area, put downward pressure on
were observed in housing (4.5%) and transport (4%). industrial prices. Similarly, processed food inflation
The former, driven by higher rentals for housing and contributed only 0.2 pp to overall inflation, mainly as
surging prices for gas, electricity and fuels, a result of slowing inflation for fresh food.
contributed 0.7 pp to headline inflation in 2005. As
the cost of energy represents a sizeable share of total Services inflation, while also decelerating, remained
transport costs, transport prices also grew rapidly, above 2% and has added 1 pp to this year’s headline
adding 0.6 pp to overall inflation. inflation. Since services represent more than 40% of
the HICP basket, they play an important role in
Rises in indirect taxes and administrated prices shaping the evolution of overall inflation. Within
remained high during 2005, contributing 0.4 pp to services, the moderation is largely attributable to a
headline inflation. While smaller than in 2004, partly continuous decline (at an average annual pace of
as a result of base effects related to sizeable increases about 2%) in prices for communication services.
in indirect tax rates last year, this contribution is still
above the long-term average of 0.2 pp. Short-term upward revision due to energy prices

Deceleration of core inflation Headline inflation is expected to be stubbornly high in

the short run and to remain above 2% for longer than
In contrast to the upward trend in headline inflation, anticipated in the spring forecast. A prolonged period
core inflation (HICP inflation excluding energy and of high energy prices is the main element behind the
unprocessed food) has been on an almost expected upward shift in the profile for inflation over
uninterrupted downward trend since the beginning of the coming quarters. As mentioned in chapter 1, a fall
2005. In the euro area, core inflation diminished from in oil prices is not expected in the near future in view
2% in 2004 to 1.5% in September 2005. A similar of continuous strong demand, limited spare capacity
decelerating pattern is evident for the EU. The and geopolitical tensions in some important oil-
decomposition of core inflation into its main producing countries. As a consequence, the direct
components – services, non-energy industrial goods impact of higher oil prices on headline inflation via
and processed food – reveals that the downward trend the energy component of the HICP is likely to remain
was driven by a slowdown of inflation in substantial.

36
 Chapter 2
The economies of the euro area and the EU

Contained indirect effects been on a downward trend for the first half of 2005
and remain well below the historical average, despite
Oil prices can also affect inflation indirectly through the up-tick in recent months. On the other hand,
the effect of higher costs for energy inputs on the inflation expectations of consumers have risen since
prices of other goods and services. However, while the beginning of 2005. The record high prices of oil
lagged effects might still materialise, to date, there is have apparently influenced households’ assessment of
little or no evidence of a pass-through of higher the situation. Nevertheless, at the current level,
energy costs into producer prices. The annual growth consumer inflation expectations are below their long-
rate of producer prices excluding energy and term average. While inflation expectations derived
construction remained broadly unchanged at 2% in from indexed-bonds moved upwards in recent
2004 and during the first nine months of 2005. months, they remain relatively subdued. The ECB’s
survey of professional forecasters reported an upward
Graph 2.20: Breakdown of industrial produce r price s, revision of short-term inflation expectations from
euro are a
20
1.9% to 2.1% in 2005, but inflation is expected to
yoy % ch.
decline to 1.8% in 2006 and to stay at that level also
15 in 2007.

10
Overall, euro-area inflation is set to hover around
2.5% for the remainder of this year and during the
5
first half of 2006. For 2005 as a whole, HICP inflation
is estimated at 2.3% in both the euro area and the EU.
0 Compared to the spring forecast, this represents an
upward adjustment of 0.4 pp. HICP inflation in 2005
-5 has been revised upwards in all euro-area Member
03 04 05 States, apart from Finland and Portugal.
energy
intermediate goods
industrial goods (excl. constr. and energy) An improved inflation outlook in the medium term
consumer goods
capital goods
Notwithstanding the short-term effects of temporary
price shocks, the medium-term outlook for price
Evidence from survey data of a strengthening of input developments remains favourable. The inflation rate
price pressures in the manufacturing and services is projected to ease in the second half of 2006,
sectors in the short-run is, at best, mixed. While the reaching 2% in the third quarter of the year and
price component of the euro-area manufacturing PMI hovering around 1.8% from the fourth quarter
suggests an increase in production prices, the onwards. In annual average terms, HICP inflation in
indicator for prices actually charged by firms is the euro area is estimated at 2.2% in 2006 and 1.8% in
consistent with stable manufacturing prices. A similar 2007. The corresponding figures for the EU are 2.2%
development is evident in the price components of the and 1.9%.
PMI for services. The index of input prices rebounded
in the third quarter of 2005, after several months of Both domestic and external factors are expected to
moderating price pressure. However, the index for contribute to the improved inflation outlook. These
prices charged is still hovering around 50, thus include overall economic conditions, which are
indicating stable output prices. On the whole, the expected to be conducive to moderate wage
more muted increases in prices charged compared to developments, and an improvement in unit labour
input prices suggest that firms are absorbing part of costs. Growth in compensation of employees per head
the rising costs by squeezing profits. is forecast to be in the vicinity of 2% this year and the
next, accelerating to 2.4% in 2007. Combined with a
In addition, despite the rise in oil prices, there are only pick-up in labour productivity growth from 0.3% in
limited sign of inflationary effects stemming from 2005 to 0.9% at the end of the forecast horizon, this
changes in inflation expectations. For instance, results in some moderation of growth in unit labour
according to Harmonised EU Business and Consumer costs.
Surveys, inflation expectations in manufacturing have

37
Economic Forecasts, Autumn 2005

Graph 2.21: Euro-are a HIC P inflation and inflation increase in energy prices.
e xpe ctations
3.0
yoy % ch.
Forecast Inflation differentials across Member States
remain wide
infl. exp. (indexed-linked bonds)
2.5 long term infl. At the Member State level, inflation is expected to
exp. (*)
remain low in Germany, at around 1.6% in 2006 and
1.1% in 2007, held down by weak domestic demand.
2.0
Inflation in France is forecast at 2.1% next year and
1.9% in 2007, following relatively higher wage
1.5 HICP inflation growth compared to its main trading partners. Similar
short-term infl. exp. (*) inflation rates are forecast for Italy. Services inflation
remains high but some moderation in wage inflation
1.0 compared to the recent past should lead to a decline in
03 04 05 06 07 overall inflation. In Spain, inflation is expected to
(*) Survey of Professional Forecasters (ECB)
decelerate from 3.3% in 2006 to 2.6% in 2007, while
remaining above the euro-area average due to
This relatively benign outlook for wage developments relatively high growth in unit labour costs. By
rests on the hypothesis that the rise in oil prices does contrast, inflation in the Netherlands, estimated at 2%
not translate into additional wage claims, thus in 2006 and 1.9% in 2007, is set to benefit from a
avoiding second-round effects on inflation. Given the contraction in unit labour costs both this year and
projected gradual recovery in economic activity (a next. Inflation is projected to remain above 2% in
negative output gap of 0.8% of GDP is foreseen over 2006 in the remaining euro-area economies, apart for
the forecast period) and moderate improvement in Finland. In 2007, Belgium and Austria are also
labour market conditions, it is unlikely that wages will expected to record inflation rates below that threshold.
represent a major source of inflationary pressures.
However, one should acknowledge the risk that a long Outside the euro area, inflation in the UK is set to
period of high headline inflation may, at a certain reach 2.2% next year and 2% in 2007. Among the
stage, feed into core inflation. larger recently-acceded Member States, inflation in
Poland is foreseen at 2.3% in 2006 and 2.5% in 2007.
On the external side, the stabilisation of oil prices In Hungary, inflation is set to decelerate markedly in
should translate into lower imported inflation, thus 2006 (2%), before accelerating once again to 3% in
putting downward pressure on overall inflation. 2007. Inflation in the Czech Republic is forecast to
Import prices are expected to decelerate from an accelerate from 1.7% this year to 2.6% in 2006 and
annual growth rate of above 4% in 2005 to 2.5% in 2007, largely reflecting rising unit labour costs. For
2006 and to fall further to 1.5% in 2007. From the the remaining Member States, the general picture is
second half of 2006 onwards, inflation should also one of decelerating inflation between 2006 and 2007.
benefit from sizeable base effects related to the past

Table 2.7
Inflation outlook - euro area and EU25
(Annual percentage change) Difference vs Difference vs
Euro area spring 2005 EU25 spring 2005
2004 2005 2006 2007 2005 2006 2004 2005 2006 2007 2005 2006
Private consumption deflator 1.9 2.0 2.1 1.7 0.1 0.4 1.9 2.1 2.1 1.8 0.2 0.3
GDP deflator 1.8 1.8 1.7 1.7 0.1 0.0 1.9 1.9 1.9 1.9 0.0 0.0
HICP 2.1 2.3 2.2 1.8 0.4 0.7 2.1 2.3 2.2 1.9 0.4 0.5
Compensation per employee 2.4 1.8 2.0 2.4 -0.4 -0.4 2.9 2.4 2.7 3.0 -0.4 -0.4
Unit labour costs 0.9 1.5 1.3 1.4 0.2 0.1 1.1 1.8 1.5 1.6 0.3 -0.1
Import prices of goods 1.5 4.1 2.5 1.5 2.4 1.8 1.5 3.7 2.4 1.5 2.2 1.6

38
6. Fiscal consolidation stalls in the wake of
weak economic growth

Aggregate budget deficit set to increase slightly currently running an excessive deficit, Portugal,
Greece, Germany and Italy are projected to achieve,
The general government deficit in the euro area is set to varying degrees, some fiscal consolidation
to reach 2.9% of GDP in 2005, up from 2.7% of GDP compared to 2005. In the case of Germany, current
a year earlier, in the wake of slowing economic policies do not include the 2006 draft budget, the
growth as evidenced by a significant widening of the presentation of which was delayed in view of the
negative output gap. The deficit is expected to early elections in September. In France, under current
diminish again marginally in 2006, based on policies, the deficit would rise in 2006, due to the
unchanged policies, and to stabilise in 2007 in the expiry of a large one-off operation carried out in
context of a moderate economic recovery. The 2005. Overall, current polices are expected to be
cyclical nature of the widening budget deficit over the insufficient to bring the deficit below the reference
forecast horizon is mirrored in a primary budget value by the end of the forecast horizon in any of the
balance net of cyclical factors, which remains broadly euro-area Member States currently under the
stable at around ¾ of a percent of GDP up to 2007 excessive deficit procedure.
(inclusive). This extends further the period since
2002 in which little to no adjustment has been made Graph 2.22: Fiscal stance and cyclical conditions in
to correct the underlying budgetary position. The non-EDP countries: 2005-2007
public finance outlook for the EU as a whole is 2
essentially stable. The nominal deficit is expected to
Annual change in the cyclically-adjusted
primary budget balance (pp. of GDP)

1.5 y = -0.1126x - 0.2039

edge up marginally, from 2.6% of GDP in 2004 to R 2 = 0.0368
2.7% of GDP in 2005, and to remain at that level until 1
2007. Unless policies change, the increase in the
0.5
nominal budget balance masks a slight improvement
of the fiscal position net of cyclical factors and 0
interest expenditure due to the fiscal effort outside the
euro area. -0.5

-1
It should be recalled that these figures, and those that
follow, are based on a “no-policy change” -1.5
assumption. They incorporate the measures -4 -2 0 2 4
announced with the budgets for 2006, but do not
Output gap (% of potential GDP)
include possible further measures for 2006 nor
measures for 2007 beyond those resulting from
decisions already taken. EU as a whole: moderate recovery does not rub off
on public finances
When the projected fiscal stance for 2005-2007 is
assessed against the expected cyclical conditions, Outside the euro area, the public finance trends
cross-country data of Member States, which are not projected in 2006 and 2007 are at least as
currently under the excessive deficit procedure, reveal heterogeneous as in the euro area. In spite of a
some pro-cyclicality in current policies. moderate recovery of economic activity, there is no
broad-based trend towards improving, or at least
Euro area: diverging trends in 2006 securing, the fiscal position. Specifically, of the six
recently-acceded Member States currently under the
Following a broad-based pattern towards higher excessive deficit procedure, Hungary and the Czech
deficits among euro-area Member States in 2005, Republic are expected to widen their budget deficit
trends are expected to diverge somewhat in 2006, further in 2006. In the case of Hungary the upward
dividing the euro area into two main country trend is expected to continue also in 2007, when
groupings. In most Member States with a relatively current policies are likely to bring the deficit close to
favourable position, i.e. a budget deficit below 2.5% 7% of GDP. In Poland, current policies are expected
of GDP, the draft 2006 budget is expected to stabilise to stabilise the deficit at 3.6% of GDP and to reduce it
or to slightly weaken the fiscal position. By contrast, only marginally in 2007. By contrast, Cyprus is
among the euro-area Member States, which are projected to correct the excessive deficit by a small

39
Economic Forecasts, Autumn 2005

margin in 2005, followed by Slovakia and Malta in A similar development is forecast in the EU, where
2006. Among the recently-acceded Member States the debt ratio is expected to increase from 63.4% of
with a relatively favourable budget balance, only GDP in 2004 to 64.3% of GDP in 2007. In view of an
Lithuania is expected to reduce its budget deficit over essentially stable primary balance, the increase is
the forecast horizon. In Estonia (which runs a mainly driven by slower nominal GDP growth.
surplus), Latvia, and Slovenia, current policies are
forecast to slightly loosen the fiscal position. Concerning the respect of the 60% of GDP reference
value of the Treaty, apart from Portugal, where the
The Scandinavian non-euro countries, Denmark and debt ratio is estimated to rise above 60% of GDP in
Sweden, are expected to spend some of their 2005, no Member State is expected to cross the
budgetary surplus in 2006, but without compromising reference value over the forecast horizon, either from
their comfortable position. Current policies are likely above or below. Among the countries with a debt
to keep the deficit above the 3% of GDP reference ratio above the 60% of GDP threshold, Belgium,
value in the United Kingdom. Greece, Cyprus and Austria are projected to reduce it
up to 2007 (inclusive). In the case of Italy, following
Debt ratios remain on an upward trend the sharp increase in 2005, the debt ratio is also
The upward trend in the euro-area debt ratio observed expected to decline slowly, mainly on account of
since 2003 is not expected to reverse during the planned receipts from privatisations. Conversely, a
forecast period, in spite of the projected recovery of further increase in the debt ratio up to 2007
nominal GDP growth in 2006 and 2007. The debt (inclusive) is expected to take place in Germany,
ratio is set to reach 72% of GDP in 2007, around one France and Portugal.
percentage point higher than in 2004, as the projected
revival of economic activity is unlikely to outweigh
the downward shift in the primary budget surplus in
2005 and beyond.

Table 2.8
General government budgetary position - EU25
(% of GDP) Autumn 2005 Difference vs
forecast spring 2005
2002 2003 2004 2005 2006 2007 2005 2006
Total receipts (1) 45.2 45.2 45.1 45.2 45.0 44.8 0.0 -0.1
Total expenditure (2) 47.5 48.3 47.7 47.9 47.7 47.5 0.1 0.1
Actual balance (3) = (1)-(2) -2.4 -3.0 -2.6 -2.7 -2.7 -2.7 -0.1 -0.2
Interest expenditure (4) 3.2 3.0 2.9 2.9 2.8 2.8 -0.1 -0.2
Primary balance (5) = (3)+(4) 0.8 0.0 0.2 0.1 0.1 0.1 -0.3 -0.3
Change in actual balance : -1.1 -0.6 0.4 -0.1 0.0 0.0 -0.1 -0.1
Gross debt 61.4 63.0 63.4 64.1 64.2 64.3 0.0 0.0
p.m. Actual balance euro area -2.5 -3.0 -2.7 -2.9 -2.8 -2.8 -0.3 -0.1
p.m. Primary balance euro area 1.0 0.4 0.5 0.3 0.2 0.2 -0.3 -0.4
p.m. Cycl. adj. prim. balance euro area 0.7 0.8 0.7 0.9 0.8 0.7 -0.2 -0.2

Note : Total expenditure, actual and primary balances include UMTS proceeds, while cyclically adjusted figures exclude UMTS proceeds.

40
Chapter 3
Member States
1. Belgium
A slow economic recovery

Activity in 2005 stage of the 2001 direct tax reform and some
improvement in employment. After decreasing
In 2005, the economic slowdown that had started at continuously since 2002, the household saving rate is
the end of 2004 turned out to be more severe than expected to stabilise around 12.3%. On the other
anticipated. Real GDP growth almost came to a hand, growth in government consumption should
standstill in the first quarter and remained moderate in remain moderate, especially in 2006, in view of the
the second quarter, mainly as a result of declining government’s efforts required to reach its budgetary
exports. For the last two quarters a real growth of targets. Gross capital formation is forecast to remain
0.4% is expected, mainly due to increased external strong in 2006, mainly driven by public investment by
demand. Overall, GDP growth in 2005 is forecast at local authorities in the run-up to the 2006 local
1.4%. elections. However, following the pattern that has
Despite the recovery in the balance of trade expected been observed in the past, public investment in 2007
for the second half of the year, external demand is should decrease markedly. On the other hand, the
likely to have a negative impact on economic growth anticipated recovery of external markets and some
in 2005. Moreover, continuous weak consumer improvement in consumption expenditure should
confidence, fuelled by the recent turmoil in the oil continue to stimulate private investment, which is
markets and uncertainty regarding the ongoing debate expected to remain reasonably solid throughout the
on pensions and early retirement, could also dampen forecast period.
consumption. Investment was exceptionally strong in Labour market, costs and prices
the first half of the year despite decreasing business
confidence, possibly because of some catching-up In the first half of 2005, the Belgian labour market
after low investments in previous years. In the second benefited from the strong economic growth observed
half of the year, investment is expected to slow down in 2004, but lost momentum towards the second half
somewhat and, following a recent improvement in of the year. Higher economic growth and efforts to
business confidence, settle at an average rate of 4.9% reduce the tax burden on labour should revive job
for 2005. creation from 2006 onwards, but its effect on the
unemployment rate remains limited due to a growing
Prospects for 2006 and 2007 labour force. Moreover, the cumulative nominal wage
From 2006 onwards, some economic recovery is increase of 4.5% for 2005-2006 foreseen in the latest
expected, albeit at a moderate GDP growth rate close wage agreement will probably be exceeded, which
to 2%. While exports should continue to recover in will also have an adverse effect on the labour market.
2006, consumption will benefit from stronger growth In 2005, the CPI is expected to increase by 2.8%. The
in gross disposable income resulting from the final inflationary effect of rising oil prices has been slightly
offset by some compensating tax measures in the
second half of the year. However, because some of
Graph 3.1 : Belgium - Deficit and debt as % of GDP in
1970 - 2004
these measures only reduce prices in 2005 and due to
inflationary pressure stemming from increased wages,
Debt as % of GDP
150 inflation could still reach 2.7% in 2006, but should
140 95 fall again afterwards.
130
120 90 Public finances
00 85
110
In 2005, despite the economic slowdown, tax revenue
100
90
remained on track and reforms in the health sector
80
helped to keep health care expenditure in line with the
70 80 4.5% real growth target (against an overrun of 7.8%
70 in 2004). Therefore government accounts are
60
75 expected to reach a position close to balance. For
50
-2 0 2 4 6 8 10 12 14 16 18 2006 a deficit of 0.3% of GDP can be expected,
Deficit as % of GDP against a balanced budget foreseen in the 2006 budget

42
 Chapter 3
Member States, Belgium

law1. The difference is mainly due to less optimistic expenditure the debt ratio remains on a downward
assumptions on government expenditure, lower path (see graph 3.1). By the end of the forecast
estimates for the proceeds of a fiscal regularisation horizon, the debt ratio is expected to fall well below
measure as well as for some new tax measures, and an 90%.
expected loss in income linked to the sale of tax
arrears in 2005. In 2007 the government balance is
expected to further deteriorate due to a substantial 1
For the time being, an assumption of debt from the railway
package of one-off measures in the 2006 budget company by the government in 2005 has been treated without direct
(some 0.5% of GDP) and reductions in social security impact on the government deficit, while securitisations of tax
contributions (close to 0.2%). On the other hand, arrears in 2005 and 2006 have been recorded as deficit-reducing.
These treatments are of a purely technical nature and are without
public finances will benefit from a normalisation of prejudice to the final accounting decision. Should Eurostat decide
spending by local authorities after the local elections that such operations should be booked differently, the forecast for
(over 0.2% of GDP) and lower interest payments the deficit would increase by up to 2.7% of GDP in 2005 and 0.2%
(0.1%). Therefore, on a no-policy-change basis and in of GDP in 2006. Moreover, the forecast for 2006 assumes that the
conditions of sales and lease-backs of government buildings (0.2%
the absence of new one-off receipts a deficit of over of GDP) permit these transactions to be recorded as deficit
0.5% of GDP is forecast. reducing.

In 2005, the debt reduction has been slowed down by

the assumption of a 2.5% of GDP debt from the
national railway company. Overall, as a result of
sustained budgetary efforts and declining interest

Table 3.1
Main features of country forecast - BELGIUM
2004 Annual percentage change
bn Euro Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 288.1 100.0 2.0 1.5 0.9 2.6 1.4 2.1 2.0
Private consumption 152.8 53.1 1.9 0.8 0.9 1.5 1.3 1.5 1.8
Public consumption 66.1 22.9 1.4 2.9 2.5 2.0 1.1 1.5 1.6
Gross fixed capital formation 54.3 18.8 1.9 -2.3 -0.7 4.2 4.9 3.9 2.2
of which : equipment 25.9 9.0 4.6 -2.8 -2.5 2.3 5.4 4.2 4.1
Change in stocks as % of GDP 3.3 1.2 0.1 0.3 0.3 0.7 0.6 0.5 0.4
Exports (goods and services) 241.5 83.8 4.5 1.2 2.9 6.2 2.2 4.4 4.8
Final demand 518.0 179.8 2.9 0.9 1.9 4.3 2.0 3.1 3.2
Imports (goods and services) 229.9 79.8 4.1 0.1 3.1 6.4 2.7 4.3 4.7
GNI at constant prices (GDP deflator) 290.7 100.9 2.1 1.3 1.0 2.1 1.4 2.1 2.0
Contribution to GDP growth : Domestic demand 1.8 0.6 0.9 2.1 1.9 1.9 1.8
Stockbuilding 0.0 0.0 0.0 0.4 -0.1 -0.1 -0.1
Foreign balance 0.3 0.9 -0.1 0.1 -0.4 0.3 0.3
Employment 0.5 -0.3 0.1 0.7 0.7 0.6 0.7
Unemployment (a) 8.9 7.3 8.0 7.9 8.0 7.9 7.8
Compensation of employees/head 4.3 4.1 1.6 2.1 2.6 2.7 2.4
Unit labour costs 2.7 2.2 0.8 0.2 1.8 1.3 1.1
Real unit labour costs -0.3 0.4 -0.9 -2.1 -0.8 -1.0 -0.7
Savings rate of households (b) - - 14.3 12.8 12.3 12.4 12.2
GDP deflator 3.0 1.8 1.7 2.3 2.6 2.3 1.9
Private consumption deflator 3.0 1.3 1.6 2.5 2.9 2.7 2.0
Harmonised index of consumer prices - 1.6 1.5 1.9 2.7 2.6 1.9
Trade balance (c) 0.5 3.8 3.5 2.7 2.1 2.2 2.4
Current account balance (c) 2.4 5.0 4.5 3.5 3.0 3.1 3.3
Net lending(+) or borrowing(-) vis-à-vis ROW (c) 2.3 4.8 4.4 3.4 3.0 3.1 3.2
General government balance (c)(d) -5.8 0.0 0.1 0.0 0.0 -0.3 -0.5
General government gross debt (c) 118.5 105.8 100.4 96.2 94.9 91.1 88.1
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

43
2. Czech Republic
Strong growth fuelled by vigorous exports

Activity in 2005 substantially, reaching a surplus for the first time

since 1991. Czech exports seem to be profiting from
The performance of the Czech economy remained the German export boom and strong growth in
strong in the first half of 2005, with growth increasing Slovakia (the second biggest export market), as well
to 4.9% year-on-year, the highest growth rate since as gaining new markets to the east. As a result, the
1996. Economic activity was driven mainly by net current account deficit should decline from 5.2% of
exports which increased substantially. Private GDP in 2004 to less than 3% in 2005. The positive
consumption accelerated, but remained subdued. trend in the external sector is projected to continue. In
Public consumption continued to fall and growth of 2007, the trade balance surplus is forecast to be about
gross fixed capital formation decelerated. Robust 3% of GDP and the current account deficit should
economic activity is expected to continue for the rest shrink to some 2¼% of GDP.
of 2005, leading to an annual growth rate of about
4¾%. Strong economic performance will be mainly Labour market, costs and prices
due to vigorous exports.
Strong economic performance helped improve the
Prospects for 2006 and 2007 situation in the labour market. The trend of falling
employment was reversed and the rate of
In 2006 and 2007, the economic expansion is unemployment began to fall, reaching about 8%.
projected to remain strong, but to decelerate to some Employment is projected to increase over the forecast
4½% in 2006 and 4¼% in 2007. Although net exports horizon. The rate of unemployment is forecast to fall
are expected to continue to be an important driving continuously from 8.3% in 2004 to about 7½% in
force of GDP growth, domestic demand is expected to 2007, mainly thanks to strong economic growth.
strengthen. Private demand will be stimulated by an
improving labour market situation and investment by Due to the ongoing appreciation of the koruna, strong
higher utilisation of EU structural funds and competition, falling food prices and favourable base
favourable financial conditions. Public consumption effects, average annual HICP inflation was only 1.3%
will accelerate, though only slightly. in the first half of 2005. Since the beginning of 2005,
inflation has been below the target band set by the
Vigorous exports resulted in a significant monetary authorities. As a consequence of high
improvement of the trade balance and a substantial energy prices, inflation is likely to increase towards
narrowing of the current account deficit. The the end of 2005 and in the first half of 2006. A
developments in the external sector are forecast to be temporary overshooting of the upper limit of the
positive. Vigorous export growth boosted by EU inflation target is expected. However, average HICP
accession should continue, though at a slower pace. inflation is projected to remain low in 2005 (1¾%).
The trade balance is expected to improve Acceleration to almost 3% is foreseen in 2006 and
future inflation development will largely depend on
the reaction of wages to increased energy prices.
Graph 3.2: Czech Republic - Current account
and trade balance
Assuming relatively weak second-round effects, the
4 % of GDP
inflation rate is forecast to be slightly below the
monetary policy target in 2007 (CPI inflation of 3%
2 year on year +/-1 pp since 2006).
0 Public finances
-2 Forecasting public finances has become complicated
since the spending ministries gained the possibility of
-4
rolling over unspent funds from previous budgetary
-6 Forecast
years. Last year, the unspent funds amounted to about
1% of GDP. This creates uncertainty about when
-8 those funds will be accumulated and when they will
00 01 02 03 04 05 06 07 be spent.
current account trade balance

44
 Chapter 3
Member States, Czech Republic

Over the first ten months of 2005, budgetary revenues budget, higher spending will be financed by budgetary
have been higher than expected, mainly due to very revenues generated by strong economic growth.
strong economic growth. At the same time, under- Given ongoing good economic performance and a
execution of expenditures is likely to be repeated. record of prudent budgetary policy, the deficit of
Given the very positive cash developments in the state 3¼% of GDP in 2007 is within reach. However, the
budget, the total budgetary outcome in 2005 is structural budgetary balance is forecast to worsen in
expected to again be better than expected. The general both 2005 and 2006.
government deficit is forecast to reach about 3¼% of
GDP, compared with the convergence programme Gross public debt is expected to slightly decrease in
target of 4.7% of GDP. The projected deficit includes 2005 to 36¼% of GDP, mainly thanks to privatisation
two major one-off expenditures (financial leasing of proceeds. In 2006 and 2007, government debt is
military jets and alleviation of foreign debt) and projected to slightly increase.
assumes that the expenditure rolled over from 2004
will be fully spent, but new savings of about 1½ % of
GDP may be realised.
The 2006 deficit is projected to reach 3¾% of GDP,
under the assumption that about 1% of GDP on the
expenditure side will be again rolled over into 2007.
Despite the planned nominal medium-term
expenditure ceilings being overshot in the 2006 draft

Table 3.2
Main features of country forecast - CZECH REPUBLIC
2004 Annual percentage change
bn CZK Curr. prices % GDP 95-01 2002 2003 2004 2005 2006 2007
GDP at previous year prices 2749.1 100.0 2.3 1.5 3.2 4.4 4.8 4.4 4.3
Private consumption 1378.6 50.1 3.1 2.8 4.6 2.1 2.4 3.5 3.9
Public consumption 621.9 22.6 1.0 4.5 3.8 -2.0 0.3 1.9 1.4
Gross fixed capital formation 749.9 27.3 4.0 3.4 4.7 7.6 3.9 4.2 5.4
of which : equipment 333.5 12.1 11.0 7.7 3.3 5.1 5.8 4.8 5.7
Change in stocks as % of GDP 8.1 0.3 1.0 1.7 0.6 0.7 -0.6 -0.5 -0.4
Exports (goods and services) 1973.2 71.8 10.6 2.1 7.5 21.9 9.1 9.7 9.6
Final demand 4731.7 172.1 5.7 2.9 5.0 9.9 4.6 6.2 6.5
Imports (goods and services) 1982.6 72.1 11.7 4.9 7.9 18.4 4.5 8.4 9.1
GNI at previous year prices (GDP deflator) 2609.6 94.9 1.7 0.2 3.5 3.9 4.3 3.5 3.9
Contribution to GDP growth : Domestic demand 3.0 3.4 4.5 2.6 2.3 3.2 3.6
Stockbuilding 0.3 0.1 -0.9 0.1 -0.8 0.0 0.0
Foreign balance -1.0 -2.0 -0.4 1.7 3.3 1.2 0.7
Employment - 1.5 -1.4 0.1 0.5 0.4 0.3
Unemployment (a) 6.3 7.3 7.8 8.3 7.9 7.5 7.4
Compensation of employees/head - 6.2 4.9 5.9 4.6 5.6 5.4
Unit labour costs - 6.3 0.2 1.4 0.3 1.6 1.4
Real unit labour costs - 3.4 -2.3 -1.6 -2.3 -0.9 -0.8
Savings rate of households (b) - - - - - - -
GDP deflator 6.7 2.8 2.6 3.0 2.7 2.5 2.2
Private consumption deflator 6.1 0.7 1.8 2.7 2.1 2.3 2.3
Harmonised index of consumer prices - 1.4 -0.1 2.6 1.7 2.9 2.6
Trade balance (c) -6.2 -3.0 -2.7 -0.8 1.7 2.7 3.1
Current account balance (c) -4.3 -5.6 -6.3 -5.2 -2.9 -2.6 -2.3
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -4.3 -5.7 -6.3 -5.7 -2.7 -2.4 -2.1
General government balance (c)(d) -5.3 -6.8 -12.5 -3.0 -3.2 -3.7 -3.3
General government gross debt (c) - 29.8 36.8 36.8 36.2 36.6 36.9
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

45
3. Denmark
An economy in excellent shape on most scores

Activity in 2005 Prospects for 2006 and 2007

The recovery of economic activity in Denmark which Continuing the healthy growth from 2005, robust
took hold in 2004 has continued in 2005. After a domestic demand should allow a GDP growth of
hesitant first quarter, GDP growth was very strong in around 2¼% in 2006, only slightly lower than in the
the second quarter, with the economy growing at a previous year. Private consumption growth is
yearly rate of more than 2½% in the first half of the expected to remain vigorous, underpinned by the
year. Private consumption continues to be the main suspension also in 2006 and 2007 of the special
engine of growth. Consumption is boosted by real pension savings contributions. Nevertheless,
disposable income gains, a booming housing market, consumption growth should moderate as the effects of
falling unemployment and low interest rates. the tax cuts on real disposable income taper off. In
Consumers have, it seems, not been overly addition, the stimulus to household wealth coming
discouraged by high fuel prices and car sales in from the substantial rises in house prices in recent
particular remain buoyant. Public consumption grew years is expected to be less marked as the financing
by 2% in real terms in 2004 and is expected to expand costs rise.
in excess of the government’s 0.5% objective also in
2005. Fixed investment rebounded vigorously in the Denmark’s export markets are expected to expand
second quarter, with investment in equipment firmly in the forecast period, and Danish exports are
expanding at a two-digit rate. Investment has been set to grow robustly, albeit with some loss of market
growing irregularly in recent quarters but seems to be share. This is a not uncommon feature for Denmark in
on an upward trend. Exports also grew very strongly phases of upswing, linked inter alia to the
in the second quarter, in spite of subdued growth in composition of exports. As the growth of imports is
the euro area, Denmark’s main export market. expected to dampen in line with domestic demand, the
However, the impact on GDP growth was cancelled growth contribution of net exports should turn
out by a rise in imports of a similar magnitude. positive in the forecast period.

Recent trends are expected to continue during the rest In 2007, a continued slowdown of private
of the year. Backed by strong consumer confidence, consumption is expected as consumer demand for
private consumption growth is set to be even stronger durables begins to be satisfied and interest rates
than in 2004 (4.1%). As exports gather strength, the increase. In the absence of further tax cuts, the
growth contribution of net exports is expected to be stimulus from income gains will be weaker. Exports
only slightly negative in 2005, in contrast to the are foreseen to remain robust, with net exports
markedly negative growth contribution in 2004. contributing positively to economic activity. The
upswing is thus foreseen to be more balanced and less
dependent on strong consumption growth. On this
basis, GDP growth in 2007 is expected to be around
Graph 3.3: Denmark - Contributions to GDP growth 2%.
4 yoy % ch.
Forecast Labour market, costs and prices
3
After the only slight improvement in 2004, the labour
2
market reacted positively, though with some lag, to
the recovery in economic activity. Employment
1 growth picked up in 2005 and unemployment has
started to head down firmly. As the expansion
0 continues, the labour market can be expected to move
close to its capacity towards the end of the forecast
-1
period. This should lead to some upward pressure on
-2
domestic inflation coming from wages. However,
99 00 01 02 03 04 05 06 07 there are as yet few signs of labour shortages leading
to wage-driven inflation. In particular in the tradable
Domestic demand Net exports GDP growth

46
 Chapter 3
Member States, Denmark

goods sectors, globalisation may be acting to dampen developments of revenues from oil and gas
inflationary pressures. exploitation and from the pension fund yield tax,
where the rise in prices and financial market
After the historically low inflation in 2004, which was developments respectively have boosted tax revenues
due to temporary price effects due to tax cuts and low substantially. It should be noted that the figures
import prices, consumer price inflation in 2005 has reported by the Commission, in contrast to the Danish
increased. This is largely due to rising energy prices, National Accounts, include the surplus of the ATP
while domestic inflation remains relatively subdued. pension fund, thereby improving the general
Over the forecast period, the effects on inflation of government balance by around 1 pp of GDP. This
rising oil prices will taper off, while domestically situation is expected to continue until spring 2007.
generated inflation is set to pick up as capacity
pressure in the economy increases. Headline inflation In the forecast period, dampened economic activity
is foreseen to be around 2% through 2007. and receding oil prices and lower revenues from the
pension fund yield tax are expected to contribute to
Public finances lower surpluses. On this basis, the gross debt ratio is
Denmark’s public finances are among the strongest in expected to continue to fall markedly, reaching some
the EU. After a surplus of 2.7% of GDP in 2004, 31% of GDP at the end of 2007.
general government finances are expected to post an
even higher surplus of around 3½% of GDP in 2005.
In addition to the effects of the healthy growth, the
strength of public finances is largely due to the

Table 3.3
Main features of country forecast - DENMARK
2004 Annual percentage change
bn DKK Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 1460.0 100.0 2.0 0.5 0.6 2.1 2.7 2.3 2.1
Private consumption 710.1 48.6 1.3 0.8 1.4 3.8 4.1 2.6 2.1
Public consumption 388.3 26.6 1.6 2.2 0.4 2.0 0.9 0.5 0.5
Gross fixed capital formation 284.5 19.5 2.9 0.5 1.6 3.3 3.8 4.0 3.3
of which : equipment 118.4 8.1 4.3 2.8 2.1 5.4 4.8 4.9 4.0
Change in stocks as % of GDP 3.8 0.3 0.4 0.4 0.3 0.5 0.2 0.1 0.1
Exports (goods and services) 667.3 45.7 5.2 4.8 -1.1 3.2 5.5 4.8 4.6
Final demand 2054.0 140.7 2.6 2.2 0.3 3.3 3.8 3.2 2.9
Imports (goods and services) 594.0 40.7 4.8 6.5 -0.6 6.5 6.3 5.1 4.5
GNI at constant prices (GDP deflator) 1453.9 99.6 2.0 0.7 1.2 2.3 2.8 2.4 2.1
Contribution to GDP growth : Domestic demand 1.6 -0.2 1.2 2.2 3.0 2.3 1.9
Stockbuilding 0.0 -0.2 -0.1 0.2 -0.2 0.0 0.0
Foreign balance 0.3 -0.3 -0.3 -1.1 -0.1 0.1 0.2
Employment 0.4 -0.2 -1.2 0.0 0.6 0.5 0.4
Unemployment (a) 6.6 4.6 5.6 5.4 4.6 4.2 4.0
Compensation of employees/head 5.1 3.8 3.5 3.2 3.3 3.6 3.8
Unit labour costs 3.4 3.1 1.6 1.1 1.1 1.7 2.0
Real unit labour costs -0.5 1.5 -0.6 -0.9 -1.1 -0.3 0.1
Savings rate of households (b) - - 7.9 5.2 4.0 4.5 5.2
GDP deflator 3.9 1.5 2.2 2.1 2.3 2.0 1.9
Private consumption deflator 3.9 2.3 2.0 1.6 1.7 2.0 1.9
Harmonised index of consumer prices - 2.4 2.0 0.9 1.7 2.0 1.9
Trade balance (c) 1.5 3.7 3.6 2.9 3.0 3.1 2.9
Current account balance (c) -0.6 2.5 3.3 2.5 2.9 3.2 3.4
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -0.5 2.6 3.3 2.5 2.9 3.1 3.3
General government balance (c)(d)(e) -1.2 1.4 1.2 2.9 3.7 3.0 2.7
General government gross debt (c) 65.5 47.6 45.0 43.2 36.0 33.0 31.5
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).
(e) Including second pillar pension funds (see for more details note 11 on concepts and sources).

47
4. Germany
Domestic demand picking up only gradually

Activity in 2005 Prospects for 2006 and 2007

Seasonally-adjusted GDP data have been very volatile Foreign trade is expected to continue supporting
over the last few quarters. After a marginal decline in economic growth in the medium term. At broadly
the last quarter of 2004, the first quarter of 2005 saw a stable exchange rates, German companies should
strong pick-up, followed by stagnation in the second. profit in domestic and export markets from improved
However, this variation in activity may have been price competitiveness. The current account surplus is
exaggerated by the statistical adjustment for calendar therefore projected to increase to above 4% of GDP in
effects. 2007.
Overall, the main growth contribution came from During the winter months of 2005/2006 in particular,
foreign demand. Exports benefited from decreasing private consumption will be constrained by the surge
relative unit labour costs, which led to higher market in energy prices, but is expected to gain momentum
shares in an environment of growing world trade. In towards the end of the forecast period. From 2006 on,
contrast, domestic demand remained weak as both real disposable income should benefit from the fall in
private consumption and construction investment inflation and the pick-up in regular employment. Once
receded further in the first half of 2005. The reduction a new government is installed, uncertainty about the
in the personal income tax rate from the beginning of future reform strategy and its implications should
2005 has so far had little effect on private wane. Consequently, the private savings rate is
consumption. expected to decline somewhat over the forecast
period.
Indicators point to a stronger second half of 2005 as
the German economy is suffering less from rising oil Investment in machinery and equipment should
and other raw material prices than might have been accelerate, while the decline in construction
expected. Net exports will remain the main driving investment that has now lasted for over a decade
force. Recent data on production and domestic orders should only gradually peter out. Housing investment
for investment goods point towards a strengthening of in particular is still suffering from excess capacity,
machinery and equipment investment whereas private subdued disposable income growth and, notably in the
consumption may still remain sluggish. The East, a declining population.
construction sector is projected to continue its
structural decline, though not at the same rate as in the With a continued sizeable positive growth
first semester. contribution from the external side and a gradual
recovery of domestic demand, GDP growth in
Germany will gain momentum. With a projected
growth rate of about 1½ % year-on-year in 2007,

Graph 3.4: Germany - GDP and contributions to growth

Graph 3.5: Germany - Components of gross fixed capital
formation
5 yoy % ch.
25 % of real GDP
Forecast
4
Non-government investment Forecast
3 20

1 15 Construction

0
10 Machinery and equipment
-1

-2 5
92 95 98 01 04 07 Government
External balance of goods and services
Final domestic demand 0
GDP 92 95 98 01 04 07

48
 Chapter 3
Member States, Germany

actual growth should finally rise above potential. lorries are adding to revenues. The low wage
dynamics and the fall in the number of regular jobs
Labour market, costs and prices are weighing on the contribution base of the social
Recent developments in the labour market were security system. Despite the 2004 reform of the public
largely shaped by policy measures. The bulk of the health care system, public health insurers lowered the
new jobs created were the result of either subsidised contribution rates only marginally in 2005 in order to
self-employment, reduced payroll taxes ("mini-jobs") continue running surpluses so as to reduce their debt.
or work for benefit recipients ("one-euro jobs"). In Expenditure relief continues to come from public
contrast, employment subject to social security sector wage restraint, reductions in public
contributions fell substantially in the first months of employment and a declining share of public
2005, but seems to have stabilised thereafter. As a investment in GDP. Nevertheless, the expenditure
consequence, seasonally-adjusted unemployment share in GDP is unlikely to fall in 2005. While
continued to increase at the beginning of this year and pension outlays have been growing less than nominal
stabilised only recently. GDP, the rising number of recipients is burdening the
The shift towards more flexible forms of employment budget. Pensions are indexed to wage developments
as a result of recent labour market reforms should with a lag. Despite the stagnating contribution base,
come to an end over the forecast period. In addition, current legislation prevents a decline in expenditure
continued strong exports and a gradual pick-up in per recipient. As a consequence, the liquidity funds of
domestic demand will lead to a stronger creation of the pension system have been further depleted in
full-time employment. This in turn should allow wage order to hold the contribution rate constant. The
growth in the private sector to pick-up as of 2007. In dampening effect of the 2004 reform of the health
the public sector however, the recent collective sector abated in 2005 due to rising prices of
agreement broadly fixes nominal wages at the current medication.
level until the end of 2007. The current wage The expenditure relief from the public sector wage
constraint, together with still rising labour bill and reduced public investment has been balanced
productivity, will lead to a further fall in unit labour by significantly growing expenditure on
costs in 2005 and 2006, which should bottom out unemployment and social benefits. Employment
thereafter. growth could not contribute much to reducing this
Surging energy prices, together with increases in the budgetary burden, as it was to a large extent promoted
tobacco tax, have driven headline inflation to the by public schemes. Holders of “one-euro jobs”
highest levels in four years. Based on the assumption continue to be entitled to their social benefits and
of slightly lower oil prices compared with the level receive a small top-up. Moreover, the implementation
reached in September 2005, inflation should, under of the new social benefit system (“Hartz IV”-package)
current policies with no tax rises legislated, converge did not provide the expenditure relief expected by the
towards the core rate, which is currently hovering government. Administrative frictions in the transition
around 1%. have been greater than expected, and problems in the
application of means-testing have led to higher
Public finances expenditure per head and a higher number of
recipients than expected.
In 2005, the general government deficit is projected to
widen and will hence breach the 3%-of-GDP ceiling Finally, the pension office for former post office civil
for the fourth consecutive year. In cyclically adjusted servants securitised future contributions from the post
terms, the deficit is expected to improve marginally office’s successor companies, raising its liquidity, so
from the previous year. that the federal government would be able to postpone
payments to the office in 2005, equalling 0.25% of
The revenue share in GDP is expected to fall slightly GDP. According to ESA95 accounting rules,
this year, which is due to the implementation of the however, this transaction does not reduce government
last stage of the tax relief law from the year 2000. expenditure calculated on an accrual basis.
However, subsidy repayments by several
Landesbanken and the introduction of the road toll for

49
Economic Forecasts, Autumn 2005 Germany

Up to the cut-off date for this forecast, the federal 2006, providing budgetary relief from 2007. This will
government had not adopted a draft budget for 2006. be supported by the recovery in the primary labour
With current legislation in force, Germany would market expected for 2007. Overall, these measures are
continue breaching the 3%-of-GDP deficit ceiling also projected to reduce the cyclically-adjusted deficit
in 2006 and 2007. Further changes to the tax system slightly towards the end of the forecast period.
are not legislated. Budgetary relief will continue to
come from the public sector wage bill, as the wage Government debt would continue to rise over the
agreement of 2005 extends to 2007. In addition, entire forecast period, reaching 70% of GDP by 2006.
pension expenditure is projected to be dampened by According to ESA95 accounting rules, privatisation
the slow growth of the contribution base. In 2006, operations that involve the transfer of shares to
companies will have to carry forward a part of their Kreditanstalt für Wiederaufbau (KfW) are not debt-
monthly social contributions from the middle of the reducing, pending the actual sale of shares on the
following month to the end of the month when the market by KfW. As the federal government would
payment is due. This will lead to thirteen instead of have transferred most of its stock to KfW by 2006, the
twelve cash payments in 2005, but does not affect the dampening effect of privatisation proceeds on gross
budget balance according to ESA95 accounting rules. debt will wane.
With the political intention to keep the pension
contribution rate constant, the pension system will
record a deficit in 2006 and 2007. Under current
legislation, the unemployment insurance period will
be shortened for elderly new recipients from February

Table 3.4
Main features of country forecast - GERMANY
2004 Annual percentage change
bn Euro Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at previous year prices 2215.7 100.0 2.2 0.1 -0.2 1.6 0.8 1.2 1.6
Private consumption 1312.5 59.2 2.1 -0.5 0.1 0.6 -0.1 0.3 0.8
Public consumption 412.8 18.6 1.6 1.4 0.1 -1.6 -0.4 0.0 0.0
Gross fixed capital formation 384.9 17.4 1.6 -6.1 -0.8 -0.2 -0.5 1.6 2.0
of which : equipment 149.4 6.7 2.5 -7.5 -0.2 2.6 4.2 4.7 4.6
Change in stocks as % of GDP -4.0 -0.2 0.0 -1.9 -1.3 -0.8 0.0 0.0 0.0
Exports (goods and services) 842.8 38.0 6.0 4.2 2.4 9.3 6.1 6.5 6.2
Final demand 2949.0 133.1 2.7 -0.3 1.1 2.9 1.6 2.3 2.6
Imports (goods and services) 733.4 33.1 5.0 -1.4 5.1 7.0 4.5 5.2 5.0
GNI at previous year prices (GDP deflator) 2216.0 100.0 2.1 -0.1 0.2 2.4 0.8 1.3 1.8
Contribution to GDP growth : Domestic demand 1.8 -1.3 0.0 0.0 -0.3 0.5 0.8
Stockbuilding -0.1 -0.6 0.6 0.5 0.2 0.0 0.0
Foreign balance 0.4 1.9 -0.7 1.1 0.8 0.8 0.8
Employment 0.7 -0.6 -1.0 0.4 0.3 0.5 0.4
Unemployment (a) 6.9 8.2 9.0 9.5 9.5 9.3 9.1
Compensation of employees/head 3.7 2.0 2.4 1.4 -0.1 0.2 1.2
Unit labour costs 2.2 1.3 1.6 0.1 -0.5 -0.5 0.1
Real unit labour costs 0.0 -0.1 0.6 -0.6 -1.2 -0.9 -0.4
Savings rate of households (b) - - 16.0 16.1 16.3 16.1 16.1
GDP deflator 2.2 1.5 1.0 0.8 0.6 0.4 0.5
Private consumption deflator 2.2 1.2 1.5 1.4 1.7 1.6 1.1
Harmonised index of consumer prices - 1.3 1.0 1.8 2.0 1.6 1.1
Trade balance (c) 3.7 6.4 6.1 7.0 7.1 7.1 7.4
Current account balance (c) 0.7 2.2 2.1 3.7 3.8 3.9 4.5
Net lending(+) or borrowing(-) vis-à-vis ROW (c) 0.6 2.2 2.1 3.7 3.9 3.9 4.4
General government balance (c)(d) -2.2 -3.8 -4.1 -3.7 -3.9 -3.7 -3.3
General government gross debt (c) 47.2 61.2 64.8 66.4 68.6 70.0 71.4
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

50
5. Estonia
Booming activity, with external balance set to improve

Activity in 2005 build-up of private pension funds should improve

Estonia’s savings–investment balance. As a
GDP growth accelerated further during the first six consequence, the external account deficit can be
months of 2005, from an annual growth rate of 7.8% expected to distinctly narrow to a more sustainable
in 2004 to a remarkable 8.6%. Activity is receiving level of around 6% of GDP towards the end of the
strong support from both domestic demand and net forecast period.
exports, including tourism. Investment jumped by
9.1%, up from 6% last year, while private and public Labour market, costs and prices
consumption, though lively, expanded at a distinctly
slower pace than GDP. Construction benefited in Buoyant activity is creating many new job
particular from a housing boom, driving up credit opportunities, notably for the self-employed.
demand. However, statistics may overestimate the effective
increase, as improved tax collection measures are
With the trade balance rapidly improving, the external leading to a systematic whitening of the grey
account deficit is likely to narrow to less than 10% of economy. This same effect explains part of the
GDP this year, despite a widening deficit on the employment growth observed in 2005. With
income balances. unemployment steadily decreasing to 8.1% of the
workforce in August 2005, labour shortages are
Prospects for 2006 and 2007 emerging in certain segments of the market.
Estonia’s economy is expected to remain on a path of Although wage pressure is mounting in some sectors,
strong and broad-based growth, with annual rates well overall wage growth continues to be largely in line
above 7% and little cyclical variation. Investment is with the substantial productivity increases.
expected to remain strong, fuelled by public Consequently, real unit labour costs for the whole
infrastructure spending and smooth absorption of EU economy are projected to remain largely broadly
transfers. The corporate sector can also be expected to stable. Service sector wages are growing most
invest vigorously, partly due to the fact that a tax strongly as tourism and transport services are
exemption for reinvested earnings will be abolished booming, followed by construction and the public
by the end of 2008, in accordance with the provisions sector. Since wage formation is highly decentralised,
of the EU Accession Treaty. Net exports should settlements largely respect each sector’s financial
remain positive, while private and public consumption constraints.
may ease somewhat, keeping overall growth well-
balanced. During the first 9 months of 2005, HICP inflation
picked up strongly to an average of more than 4%
Continued adherence to a prudent fiscal stance and the year-on-year, from 3% in the year 2004. Since June,
when the strong base effect from EU accession in
2004 had just started to abate, consumer prices
Graph 3.6: Estonia - GDP growth and its contributors accelerated again as a result of the oil price shock
yoy % ch. combined with a number of administered price
12 Forecast
GDP
increases that became effective in March. The weight
10
of energy in the Estonian HICP basket is among the
8 highest in the EU. Owing to this, core inflation rates
6 so far have remained stable and low, at around 2%,
4 while overall monthly HICP rates are running twice as
2 high.
0
Higher oil prices and public transport charges will
-2 Domestic continue to drive up inflation in the months to come.
-4 (excl. inventories) Annual HICP inflation is projected to peak at over 4%
Inventories
-6 in 2005 before gradually declining to somewhat above
External
-8 3% in 2006 and to around 2½% in 2007. With strong
2003 2004 2005 2006 2007 competition in the retail sector, low pressure on

51
Economic Forecasts, Autumn 2005 Estonia

producer prices and even declining prices in the to be adopted in the last days of the year. The official
telecom industry, core inflation can be expected to target for 2007 is a balanced budget. However, as has
remain at present levels, provided that wage increases been the case in recent years, some room for
stay in line with productivity gains. Since the country manoeuvre seems to be built into the underlying
is aiming for adoption of the euro in 2007, keeping government forecast. For both years, further cuts to
inflation in check will remain high on the Estonian the flat income tax rate, from its current 24% to an
policy agenda. eventual 22%, are planned on the revenue side.
Possible handouts to the electorate ahead of the 2007
Public finances national elections, especially higher benefits for
Despite a supplementary budget adopted in October pensioners, whose income is not fully protected
2005 raising expenditure by 1.3% of GDP, Estonia is against losses in purchasing power, may partly be
expected to post a higher-than-projected general covered by accumulated public reserves. In all,
government surplus of over 1% of GDP in 2005. This budgetary execution may yield small surpluses also
is owed to a combination of efficient tax collection, for 2006 and 2007. Still, the fiscal stance is expected
buoyant GDP growth and windfall gains from higher- to ease at a time when GDP growth is close to its
than-anticipated inflation, in combination with strictly estimated potential.
applied nominal expenditure ceilings.
The comfortable budgetary situation is set to prevail
throughout 2006 and 2007. The 2006 budget which
targets a small surplus is at present before Parliament,

Table 3.5
Main features of country forecast - ESTONIA
2004 Annual percentage change
bn EEK Curr. prices % GDP 95-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 141.5 100.0 5.5 7.2 6.7 7.8 8.4 7.2 7.4
Private consumption 79.2 56.0 6.3 10.7 7.6 4.4 6.5 6.5 6.2
Public consumption 26.9 19.0 2.5 6.2 5.9 6.9 5.7 5.9 6.0
Gross fixed capital formation 40.2 28.4 8.1 17.2 8.5 6.0 8.3 6.5 6.1
of which : equipment 19.3 13.7 - - - - 13.0 6.5 6.1
Change in stocks as % of GDP 4.1 2.9 1.5 3.8 3.4 3.7 3.3 0.5 -0.4
Exports (goods and services) 111.0 78.4 10.6 0.8 5.8 16.0 18.5 16.0 13.8
Final demand 261.3 184.7 7.9 7.4 6.9 9.6 12.0 9.6 9.6
Imports (goods and services) 121.8 86.1 10.9 3.8 10.6 14.6 13.7 11.6 11.4
GNI at constant prices (GDP deflator) 132.5 93.7 5.0 7.4 5.3 7.2 8.0 6.9 7.2
Contribution to GDP growth : Domestic demand 6.6 12.7 8.6 6.1 7.7 7.1 6.7
Stockbuilding 0.4 1.4 0.4 -0.1 -0.2 -2.8 -0.9
Foreign balance -1.3 -3.2 -5.7 -1.4 2.3 3.0 1.6
Employment -2.5 1.6 0.8 0.1 0.4 0.6 0.8
Unemployment (a) 10.6 9.5 10.2 9.2 7.2 6.0 5.4
Compensation of employees/head 18.8 10.3 10.9 10.8 12.8 10.0 8.3
Unit labour costs 9.7 4.5 4.7 2.8 4.5 3.2 1.7
Real unit labour costs -2.5 0.1 2.6 -0.2 -0.2 0.0 -1.1
Savings rate of households (b) - - - - - - -
GDP deflator 12.5 4.4 2.1 3.1 4.7 3.2 2.9
Private consumption deflator 11.4 3.2 0.7 2.6 4.1 3.3 2.6
Harmonised index of consumer prices - 3.6 1.4 3.0 4.1 3.3 2.6
Trade balance (c) -17.8 -15.4 -16.9 -17.5 -16.4 -15.3 -15.0
Current account balance (c) -6.9 -10.2 -12.0 -12.7 -9.9 -7.7 -7.1
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -8.0 -12.1 -13.4 -10.5 -9.0 -6.8 -6.2
General government balance (c)(d)(e) -0.6 1.5 2.6 1.7 1.1 0.6 0.4
General government gross debt (c) - 5.8 6.0 5.5 5.1 4.0 3.1
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).
(e) Including second pillar pension funds (see for more details note 11 on concepts and sources).

52
6. Greece
Growth returns to potential

Activity in 2005 with more than 4.5% last year.

Following two years of strong economic activity, with Lower growth prospects in the domestic sector should
GDP growing at 4.7%, high growth continued in the partially be compensated by developments in the
first quarter of 2005. However, the second quarter external sector. The sharp deceleration in domestic
brought evidence of a slowdown, which would demand is weighing on imports, which, after
suggest that the planned fiscal withdrawal and the stagnating in the first half of the year, are forecast to
petering out of the ‘Olympic bonus’ would already be just above 1% for the whole year. However,
weigh on growth prospects. Leading indicators and supported by a strong tourism sector and, to a lesser
hard data also point to slowing-down activity for the extent, by wage moderation, exports could grow by
second half of the year, as well as for the year as a close to 6%. As a result, the external sector could add
whole, but by less than anticipated in the Commission almost one percentage point to GDP growth.
services spring 2005 forecasts, which projected
growth rates around 3%. In addition, no clear signs Prospects in 2006 and 2007
have yet been observed that the recent oil price hike is Although the Greek economy is projected to
having a significant impact on the real economy. decelerate only marginally over the forecast horizon,
Overall, GDP growth for 2005 is projected at 3.5%. important changes are expected in growth
Although this growth projection represents a composition. In particular, economic activity will be
relatively sharp growth slowdown compared with the almost exclusively based on domestic demand. GDP
4.7% GDP growth rate recorded in 2004, economic is expected to grow at just below 3.5% in both 2006
activity in Greece is still growing well above most and 2007, so that the Greek economy could continue
euro-area countries. growing above the rates projected in spring and,
The slowdown has its origin in a deceleration of the indeed, well above those of the euro area. Moderate
domestic sector, while, after several years of negative wage and employment growth, as well as higher oil
contributions, net exports should add to growth this prices, should cause private consumption to slightly
year. With real disposable income growing less than decelerate. However, investment is projected to
last year, private consumption is projected to rebound and sustain domestic demand. This rebound
decelerate in 2005. In parallel, the fiscal retrenchment is expected to come from public investment, which is
should put a brake on public consumption and reduce projected to return to growth rates close to those of
public investment in real terms, thus heavily weighing GDP. Overall, as the recent incentives law and the
on total investment, which is projected to grow at a business tax reform should continue to support private
sluggish 1% in real terms. Overall, domestic demand investment, total gross fixed capital formation is
is now expected to grow by less than 3%, compared projected to grow at above 4% in 2006.
On the external front, imports are also projected to
rebound next year, coming back to rates more in line
Graph 3.7: Greece - Net lending and consolidated gross
debt
with past trends and growing by more than 4%. Based
8
% of GDP % of GDP
116 on a resilient tourism sector and helped by wage
6
114
moderation, exports are expected to grow above 6%.
4
Forecast As a result, the external sector is projected to
112 contribute marginally to GDP growth.
2
110
0 The economy should develop along quite similar
-2 108 trends towards the end of the forecast period, with the
-4
external sector being broadly neutral for growth.
106
-6 Labour market, costs and prices
104
-8 Deficit: gen.gov.
Deficit excl. interest: gen. gov. 102
Consistent with decelerating but still robust GDP
-10
Cyclically adjusted balance growth, employment (full-time equivalent) is
-12 Consolidated gross debt (rhs) 100 projected to grow above 1% per year until 2007. The
95 96 97 98 99 00 01 02 03 04 05 06 07 unemployment rate should accordingly decrease to

53
Economic Forecasts, Autumn 2005 Greece

around 10% by the end of the forecast period. Wages which compares with the target of 2.6% in the draft
per head are set to keep rising above the projected budget. Several factors explain this difference. The
productivity growth, but by much less than in 2004. forecast is based on a less favourable growth scenario
The combination of high nominal wage growth, (3.4% compared with 3.8% in the draft budget) and
strong domestic demand and oil price hikes should on a more prudent assessment of direct tax revenues,
fuel inflation, which is expected to rise to 3.5% this based on past outcomes. Moreover, temporary
year and remain close to 3% until 2007. revenues worth 0.6% of GDP have not been taken into
account because the draft budget does not spell out
Public finances the underlying measures. Following established
The September 2005 notification reported a deficit practice, the deficit projection for 2007, around 3.8%
figure of 6.6% of GDP in 20041. Compared with the of GDP, is based on unchanged legislation. Finally,
deficit reported in March this year, the 2004 deficit after rising to more than 109% of GDP in 2004, the
outcome is 0.5 percentage points of GDP higher. For general government debt is projected to still remain
2005, a deficit of 3.7% is projected, in line with the above 100% of GDP at the end of the forecast period.
planned deficit announced by the government in
September. This projection includes 0.8 percentage
1
points of GDP one-off revenues from a securitisation In its press release of 28 September Eurostat noted that there were
of tax arrears, although the accounting treatment of still some pending issues to be settled with Greece regarding the
accounts of social security and other items for the years 2002-2004.
this operation has not been yet approved by Eurostat.
The deficit for 2006 is projected at 3.8% of GDP,

Table 3.6
Main features of country forecast - GREECE
2004 Annual percentage change
bn Euro Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 167.2 100.0 1.7 3.8 4.6 4.7 3.5 3.4 3.4
Private consumption 111.0 66.4 2.2 3.3 4.5 4.4 3.2 3.0 2.9
Public consumption 27.8 16.6 1.7 7.3 -2.1 3.9 2.7 1.3 2.1
Gross fixed capital formation 42.4 25.4 1.7 5.7 13.7 5.7 1.1 4.2 4.3
of which : equipment 16.7 10.0 6.2 6.8 18.3 8.2 1.1 5.0 5.3
Change in stocks as % of GDP 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.0
Exports (goods and services) 35.1 21.0 4.4 -7.7 1.0 11.7 5.9 6.7 6.2
Final demand 216.4 129.4 2.4 2.3 4.7 5.7 2.9 3.6 3.7
Imports (goods and services) 49.2 29.4 5.8 -2.4 5.2 9.3 1.4 4.3 4.5
GNI at constant prices (GDP deflator) 167.4 100.1 1.4 3.8 4.5 4.9 3.4 3.4 3.4
Contribution to GDP growth : Domestic demand 2.1 4.8 5.9 5.0 2.9 3.4 3.4
Stockbuilding 0.0 0.1 0.0 0.0 -0.3 -0.1 0.0
Foreign balance -0.5 -1.1 -1.3 -0.4 0.9 0.2 0.0
Employment 0.8 0.1 1.3 2.9 1.2 1.3 1.3
Unemployment (a) 8.1 10.3 9.7 10.5 10.4 10.0 9.7
Compensation of employees/head 14.3 10.1 4.6 6.2 6.2 5.6 5.0
Unit labour costs 13.3 6.1 1.3 4.5 3.9 3.4 2.9
Real unit labour costs -0.5 2.0 -2.1 0.8 0.2 0.2 -0.2
Savings rate of households (b) - - 8.3 8.9 8.6 8.4 8.3
GDP deflator 13.9 4.0 3.5 3.6 3.7 3.1 3.1
Private consumption deflator 13.5 3.7 3.4 2.9 3.7 3.3 3.0
Harmonised index of consumer prices - 3.9 3.4 3.0 3.5 3.1 3.0
Trade balance (c) -12.3 -16.6 -16.9 -17.9 -17.1 -17.1 -16.7
Current account balance (c) -2.0 -7.8 -8.5 -8.2 -7.4 -6.6 -6.1
Net lending(+) or borrowing(-) vis-à-vis ROW (c) - -7.0 -7.2 -6.5 -6.1 -4.9 -4.6
General government balance (c)(d) -9.2 -4.9 -5.7 -6.6 -3.7 -3.8 -3.8
General government gross debt (c) 81.6 111.6 108.8 109.3 107.9 106.8 106.0
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

54
7. Spain
Sustained growth but higher external imbalances

Activity in 20051 3.2% in 2006. Growth should still be based on

buoyant domestic demand, as, in spite of higher
Economic activity in 2005 is underpinned by dynamic interest rate expectations, high inflation is projected to
domestic demand, while the external sector keep real interest rates in the red, which, in turn,
continuous contributing negatively to growth. Private should push private consumption growing above
consumption remains robust, supported by strong job disposable income. As a result, the saving ratio should
creation and easy monetary and financial conditions. continue in a decreasing path, going just below 8%. In
Such factors are also largely behind the projected parallel, household debt would rise well above 100%
acceleration in household investment in dwellings. of gross disposable income. Investments should
Private consumption growing above real disposable remain robust, backed by equipment and software,
income should further lower the households’ savings whereas residential construction growth is expected to
rate, which is expected to fall below 10%. This will moderate. All in all, the contribution of domestic
further increase households’ exposure to interest rate demand to GDP growth is projected to be slightly
and employment shocks. Investment in equipment is below 5 percentage points.
projected to remain robust, reflecting improved
business expectations. Overall, domestic demand Imports are projected to decelerate only marginally
would contribute with more than 5 percentage points since the modest slowdown in domestic demand
to GDP growth in 2005. comes from the construction sector, which has a low
import intensity. Deteriorating competitiveness should
The external sector is still recording large imbalances. keep exports growing well below EU trade, thus
Its negative contribution to growth could be close to 2 further reducing Spanish market shares.
percentage points this year. In spite of increasing oil Consequently, the trade deficit should continue to
prices, imports are projected to grow at 7% in real widen to over 8.5% of GDP. Overall, the negative
terms, while exports present a rather flat profile, contribution from the external sector to GDP growth
growing at a meagre 1%. As a result, the trade deficit is projected to be above 1.5 percentage points.
should widen by more than 1 percentage point of
GDP to attain 7½% this year, while the net lending GDP growth is projected to further slow down in
position of the country would reach 6.3% of GDP 2007. Although oil prices are expected to remain
(4.4% in 2004). These widening external imbalances relatively stable, higher interest rate expectations
mirror the continuous deterioration of the competitive should finally lead to positive interest rates in real
position of the Spanish economy. terms, which would put a break on both private
consumption and investment in dwellings. With
Prospects for 2006 and 2007 residential construction growing at a reduced speed,
GDP growth is projected to slightly decelerate to gross fixed capital formation should decelerate at the
end of the forecast period. In parallel, although at a

Graph 3.8: Spain - House holds use of income account Graph 3.9: Spain - De ficit in exte rnal accounts
% ch. % of disp. income
8 16 Forecast
% of GDP
7 14 9

6 12
7
5 Forecast 10
5
4 8
3 6 3
2 4
1
1 2
0 0 -1
98 99 00 01 02 03 04 05 06 07 98 99 00 01 02 03 04 05 06 07
T rade balance
Real gross disposable income
Real private consumption Current account balance
Saving ratio (rhs) Net lending/borrowing of the nation

55
Economic Forecasts, Autumn 2005 Spain

more moderate path, the household saving rate should likely drastic deceleration of the economic activity in
go down to situate just below 8% of the gross the short term.
disposable income, which, in turn, will further
increase household’s debt. Overall, in spite of the Labour market, costs and prices
rising risks associated to the financial position of Job creation is projected to remain robust over the
households, domestic demand would contribute to forecast period. In 2005, employment is expected to
GDP growth by around 4¼ percentage points. grow at around 3% in full-time-equivalent terms. Part
The projected deceleration of domestic demand of the growth is the result of the regularization of
should further moderate import growth. However, immigrants carried out by the government during the
since no significant improvements are expected on first semester of the year. In 2006 and 2007, job
productivity growth and inflation differentials creation should decelerate to about 2.5% and 2.2%
between Spain and its main trade partners, exports respectively, in line with slower economic activity,
would only grow by 2%, thus leading to further losses especially in residential construction. The
of market shares. As a result, the trade deficit might unemployment rate would slightly fall over the
peak above 9% of GDP. Overall, the negative forecast period, to around 8% of the labour force by
contribution to GDP growth from the external sector 2007.
should remain slightly below 1¼ percentage points. Following the oil price hike in the first and second
The evolution of the external accounts in 2006 and quarters of 2005, headline inflation, measured by the
2007 deserves special attention. Declining net tourism HICP, might be close to 3½% at the end of the year,
inflows will narrow the surplus recorded by services, while core inflation would remain around 1
especially tourism, which has traditionally offset the percentage point lower. Since the increase in energy
deficit in goods trade. The deficit of the balance of prices is expected to have also an impact on 2006,
primary incomes and current transfers should inflation is projected to remain above 3% in that year
increase, partially as a result of larger migrants’ and then ease gradually to 2.4% in 2007. Structural
transfers abroad and the expected decrease in EU factors such as insufficient competition in certain
transfers by 2007. In fact, provisional data for the first utilities and services sectors, coupled with remaining
half of 2005 indicate that the surplus of services only rigidities in the labour market, would keep the
just compensates for the aggregate deficits in the inflation differential with the euro area at around 1
primary incomes and current transfers accounts. percentage point. Although the relative moderation of
Therefore, the current account deficit is of same size construction prices in 2006 and 2007 should lead to a
as the trade deficit. All in all, the current account narrowing of the gap, the GDP deflator is projected to
deficit is expected to reach 9% of GDP at the end of keep growing well above the HICP over the forecast
the forecast period. The net borrowing position of the period.
economy is projected at above 8% of GDP in 2007. Compensation of employees per head is projected to
Since net FDI is projected to decrease, portfolio grow at around 3% until the end of the forecast
investments should represent the main source of period. Therefore, real wages would almost stagnate,
finance of the external deficit. Persistently increasing consistently with low productivity growth. However,
financial needs might put pressure on risk premia, nominal wages in Spain would still grow above the
with possible negative feedbacks for Spanish euro area average, thus mirroring the high and
households, which are already highly exposed to persistent inflation differential. Low productivity
interest rate shocks. growth, coupled with high inflation, will continue
There are risks to this scenario. In particular, some of being a drag on the competitiveness of the Spanish
the current trends, namely, higher household’s economy. As a result, unit labour costs are projected
indebtedness, low productivity growth, a persistent to keep on growing above the euro area average.
inflation differential with the euro area and wider Public finances
external imbalances, are increasing the risks of a
slowdown of the internal demand. However, neither According to the EDP notification of September 2005,
hard data nor softer indicators currently point to a a small surplus of 0.1% of GDP is projected for the

56
 Chapter 3
Member States, Spain

general government consolidated balance in 2005. in nominal terms, compared with 6% nominal GDP
This target appears attainable. In 2006, a close-to- growth. However, total expenditures are assumed to
balance position is projected in both nominal and follow previous trends and increase by 7½%. On this
structural terms. Therefore, the fiscal policy should basis, the general government deficit could be around
remain broadly neutral2. This is in line with the draft 0.4% of a percentage point of GDP. The debt to GDP
Budget Law, which targets a general government ratio is projected to continue on a declining path,
surplus of 0.2%, based on a plausible scenario where falling from almost 47% of GDP in 2004 to 41% in
nominal GDP is projected to grow by 7%. However, 2007.
the official projected revenues growth by 8.4% for the
central government could turn out slightly optimistic.
Regarding central government expenditures, the draft 1
At the beginning of the year, the Spanish statistical office carried
budget gives priority to R&D and infrastructures out an upward revision of labour statistics over the last decade and
expenditure, which will grow by around 30% and a concomitant upward revision of GDP figures by around 0.5 of a
12% respectively. Overall, central government percentage point per year since 2000.
2
expenditures are projected to increase by around 8% The calculation of the output gap in Spain, based on the
production function methodology agreed by the EPC, might have
in nominal terms. In 2007, within the framework of led to an overestimation of the contribution of the total factor
the customary no-policy change scenario, with productivity, which therefore could have overestimated the
decelerating residential construction and private potential output.
consumption, the elasticity of indirect taxes is
projected to partially return to its long-term value of
about 1. Consequently, revenues would grow at 6½%

Table 3.7
Main features of country forecast - SPAIN
2004 Annual percentage change
bn Euro Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at previous year prices 837.3 100.0 2.9 2.7 3.0 3.1 3.4 3.2 3.0
Private consumption 483.2 57.7 2.6 2.9 2.6 4.3 4.3 3.9 3.3
Public consumption 148.9 17.8 4.1 4.5 4.8 6.0 5.3 5.3 5.3
Gross fixed capital formation 233.6 27.9 4.3 3.4 5.5 4.9 6.5 5.3 4.5
of which : equipment 56.2 6.7 4.7 -2.9 2.5 3.7 6.2 6.6 6.3
Change in stocks as % of GDP 3.1 0.4 0.3 0.4 0.4 0.4 0.4 0.3 0.3
Exports (goods and services) 216.9 25.9 7.5 1.8 3.6 3.3 1.1 1.7 2.0
Final demand 1085.7 129.7 3.8 3.0 3.7 4.5 4.2 3.9 3.6
Imports (goods and services) 248.4 29.7 8.9 3.9 6.0 9.3 6.8 6.4 5.6
GNI at previous year prices (GDP deflator) 823.6 98.4 2.8 3.0 3.2 2.9 3.1 3.7 3.2
Contribution to GDP growth : Domestic demand 3.2 3.3 3.8 4.9 5.2 4.7 4.2
Stockbuilding 0.0 0.0 0.0 0.0 0.1 0.0 0.0
Foreign balance -0.2 -0.7 -0.8 -1.8 -1.7 -1.5 -1.2
Employment 1.4 2.4 2.5 2.6 3.0 2.4 2.2
Unemployment (a) 15.3 11.5 11.5 11.0 9.2 8.5 8.1
Compensation of employees/head 7.4 3.3 3.4 3.3 3.1 3.9 3.5
Unit labour costs 5.9 3.0 2.9 2.8 2.7 3.0 2.7
Real unit labour costs -0.7 -1.4 -1.0 -1.2 -1.5 -0.7 -0.2
Savings rate of households (b) - - 11.8 10.5 9.0 8.1 7.8
GDP deflator 6.6 4.4 4.0 4.0 4.3 3.8 2.9
Private consumption deflator 6.5 2.9 2.8 3.4 3.7 3.4 2.9
Harmonised index of consumer prices - 3.6 3.1 3.1 3.6 3.3 2.6
Trade balance (c) -4.2 -5.0 -5.1 -6.3 -7.6 -8.5 -9.3
Current account balance (c) -1.6 -3.9 -4.2 -5.9 -7.4 -8.3 -9.1
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -1.2 -2.8 -3.1 -4.8 -6.3 -7.3 -8.2
General government balance (c)(d) -4.1 -0.3 0.0 -0.1 0.2 0.1 -0.4
General government gross debt (c) 48.0 53.2 49.4 46.9 44.2 41.9 40.7
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

57
8. France
More balanced growth

The economic situation in 2005 Prospects for 2006 and 2007

In 2005, real GDP growth slowed down more than In 2006, real GDP growth is expected to strengthen to
expected. In the second quarter of this year, French 1¾% and to be slightly above its potential in 2007 at
GDP grew by a mere 0.1% (q-o-q), after having 2¼%. Economic activity should still be driven by
increased by 0.4% in the first quarter and 0.6% in the domestic demand, but the contribution of net exports
fourth quarter of 2004. Domestic demand and to GDP growth should be less negative by the end of
especially private consumption, which had supported the forecast period.
the French economy in previous quarters, declined.
The expiry of tax exemption, which previously Private consumption is forecast to remain the main
encouraged households to free up some savings, driving force of economic growth, based on an
might partly explain the fall in consumption in the expected recovery in employment. It will increase in
second quarter. Lower sales prospects and concerns line with disposable household income, reflecting the
related to oil price volatility hampered firms’ expected rise in the demand for labour. By the end of
investment plans. According to national accounts 2007, the reform of the 35-hour working week may
data, business investment fell by 1.2% (q-o-q), after a boost households’ income through an increase in
rise of 1.9% in the preceding quarter. On the external authorised annual overtime and the possibility of
side, the contribution of net trade to GDP growth converting the extra time saved into additional
continued to be negative. All in all, the increase in revenues. The projected benign inflation outlook
stocks was the only factor that prevented the French should also support households’ purchasing power.
economy from declining in the second quarter. Investment in equipment is expected to decelerate
Recent indicators suggest that GDP growth is likely to next year (from 4¾ to 3¾%), mainly due to relatively
strengthen in the third quarter of 2005, supported by low capacity utilisation. In 2007, this tendency is
an exceptional rebound in consumer spending on likely to be reversed due to a more positive economic
manufactured goods. However, private consumption outlook, still supportive financing conditions and the
is not likely to grow on a sustained basis since the retention of lower tax rates on new capital
recovery of employment is slower than expected. expenditure. In contrast, the investment in building
construction is forecast to strengthen from 2.4% in
Exports are projected to recover in the next semester 2005 to about 3% in the two coming years thanks to
thanks to the depreciation of the euro. All in all, the historically favourable mortgage financing conditions.
economy is forecast to grow by about ½% and ¼% q-
o-q, respectively, in the third and fourth quarter of After a loss in export market shares in 2005 for the
2005. third consecutive year, export volumes are projected
to increase again more in line with the expansion of

Graph 3.10: France - GDP and domestic demand

Graph 3.11: France - House hold's savings rate
5% 6%
Forecast 5% 18%
4%
4%
3% 17%
3% long-term average

2% 2%

1% 16%
1%
0%
0%
-1% 15%
-1%
-2%
GDP Growth (lhs)
-2% Domestic demand (rhs) -3% 14%
95 96 97 98 99 00 01 02 03 04 05
90 92 94 96 98 00 01 04 06

58
 Chapter 3
Member States, France

external demand. This is due to an improvement in energy prices should contribute to a rise in HICP
price competitiveness linked to the depreciation of the inflation. Overall HICP inflation should be slightly
euro and a somewhat stronger impulse from France’s above 2% in 2006 and slightly below 2% in 2007.
main trading partners (notably Germany and Italy). In
this context, and although imports are forecast to Public finances
remain buoyant in response to the robustness of final Following a decline from 4.2% to 3.6% of GDP in
demand, the negative contribution of net trade to GDP 2004, the general government deficit is projected to
growth will diminish over the forecast horizon. be further reduced to 3.2% of GDP in 2005,
Labour markets, costs and prices somewhat higher than the government deficit estimate
at 3% of GDP. The Commission’s scenario is based
Uncertainties concerning the durability of the on (i) a weaker macroeconomic scenario with a
recovery and the traditional lag with which slower growth in compensation of employees and
employment reacts to economic activity largely private consumption and hence lower wage-based
explain the current weakness in employment growth. contributions and VAT, and (ii) higher expenditures
In 2006 and 2007, employment growth is set to notably in local administrations and social security
strengthen in response to improved corporate funds (due to lower employment and higher prices).
profitability and better economic prospects over the
forecast horizon. The recovery of employment should This forecast incorporates substantial one-off
also be stimulated by the implementation of the payments to the general government for a total
“emergency employment plan” which aims at amount of 0.5% of GDP which are linked to the
facilitating recruitment by small companies and inclusion of the specific electricity and gas
encouraging return to work. This would allow a companies’ pension schemes in the general regime.
substantial decline in the unemployment rate, from New tax measures have a positive impact on the
9.7% of the labour force in 2004 to 8.9% in 2007. deficit of about 0.2% of GDP and notably include (i)
an increase in social security contributions resulting
Given the still high unemployment rate, wage from the above-mentioned incorporation of specific
moderation is expected to continue over the forecast pension schemes into the general one, the
horizon. Nevertheless, wages will still be supported implementation of the health-care reform and the
by the harmonisation of the different levels of the creation of a complementary pension regime for civil
minimum wage, induced by the reduction in the servants, and (ii) an exceptional tax of 25%
working week to 35 hours implemented between 1998 (compensating for the suppression of the previous
and 2002, as well as by the increase in authorised system) on distributed profits not taxed at the normal
annual overtime and the possibility of converting a rate1. Dynamic revenues notably from the personal
part of it into additional income. Moreover, a slight income tax and revenues stemming from a good
cyclical acceleration in wages is expected to occur in housing and stock exchange performance (such as
2006 and 2007, driven by the improvement of the taxes on change of ownership and on interest
situation in the labour market. earnings) should lead to an overall elasticity of
revenues to GDP of about 1.2, above the long-term
As productivity growth is expected to decelerate from average. This forecast for 2005 is consistent with an
the high rate observed in 2004, unit labour costs improvement in the cyclically adjusted balance of
should rise in 2005 but remain broadly constant over about ½% of GDP, the largest part of which reflects
the forecast horizon. Core inflation is thus projected the impact of the one-off measures.
to pick up gradually, due to some diffusion effects of
oil prices and price increases in the services sector. In the following years, the general government deficit
The government’s amendment of the so-called would increase again to about 3½% of GDP if no
Galland Law regulating the relationship between additional measures are taken. For 2006, this mainly
French retailers and their suppliers is likely to lead to reflects the fact that the ½% of GDP of one-off
lower prices of major branded products and hence to a payments mentioned above will vanish. However, the
moderation of headline inflation. On the other hand, 2006 budget bill also contains one-off revenues of
expected increases in administered prices notably about ¼% of GDP. They are linked to the integration
linked to the health-care reform and administered of the postal company’s specific pension scheme in

59
Economic Forecasts, Autumn 2005 France

the general regime, the liquidation of a precautionary assumption of unchanged policies. It thus takes
fund associated with subsidised mortgages2 and the account of already decided measures impacting 2007
exceptional collection of accumulated social such as (i) the income tax reform, (ii) an increase in
contributions on specific subsidised saving plans that the employment premium and in the income tax
will thereafter be collected on an annual basis. The allowance linked for young children, and (iii) the
current general government deficit estimate is above entrenchment of lower tax rates for new investment.
that projected by the government (at 2.9%). The All in all, these measures will represent about ¼% of
difference stems from a base effect, the growth GDP in 2007. The debt to GDP ratio would continue
differential, a lower tax-revenues-to-GDP elasticity to increase from about 65% in 2004 to 68% in 2007.
and somewhat higher expenditures compared to the
government forecast in the areas of local
administration and health expenditures. About the 1
The government’s revenues estimate associated with this measure nearly
latter, this forecast acknowledges that the health tripled from EUR 0.5 bn to EUR 1.2 bn. Thus, there is a risk that they might
reform has noticeably curbed expenditures and thus turn out to be less important.
2
While this transaction has been recorded in the forecast as a deficit
lowered its assumption from 4% in the spring decreasing transaction, a clarification of the accounting is needed.
forecast, to 3.2%, which is still somewhat higher than
that of the government (at 2.7%) based on a prudent
assessment of some of the measures announced in the
2006 draft budget for social security funds. The
deficit forecast for 2007, at 3½% of GDP, assuming
GDP growth at 2.3%, follows the conventional

Table 3.8
Main features of country forecast - FRANCE
2004 Annual percentage change
bn Euro Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at previous year prices 1648.4 100.0 2.3 1.2 0.8 2.3 1.5 1.8 2.3
Private consumption 924.3 56.1 2.1 2.3 1.4 2.1 2.0 1.8 2.5
Public consumption 394.4 23.9 2.3 2.9 2.0 2.6 1.7 1.7 1.6
Gross fixed capital formation 316.0 19.2 2.5 -1.7 2.7 2.5 2.6 3.0 3.4
of which : equipment 88.6 5.4 5.2 -4.0 1.3 2.9 4.7 3.8 4.3
Change in stocks as % of GDP 9.5 0.6 0.2 0.2 -0.1 0.9 1.3 1.4 1.6
Exports (goods and services) 427.7 25.9 5.4 1.5 -1.7 3.1 2.3 4.3 4.7
Final demand 2072.0 125.7 2.8 1.3 0.8 3.2 2.4 2.5 3.1
Imports (goods and services) 423.8 25.7 4.9 1.7 0.7 6.9 5.1 5.0 5.5
GNI at previous year prices (GDP deflator) 1657.1 100.5 2.3 0.3 1.0 2.4 2.4 1.9 2.4
Contribution to GDP growth : Domestic demand 2.2 1.6 1.7 2.3 2.0 2.0 2.5
Stockbuilding 0.0 -0.3 -0.3 1.0 0.2 0.1 0.1
Foreign balance 0.1 0.0 -0.6 -0.9 -0.7 -0.2 -0.3
Employment 0.4 0.9 0.1 -0.1 0.1 0.5 0.9
Unemployment (a) 9.7 8.9 9.5 9.6 9.6 9.3 8.9
Compensation of employees/head 4.9 3.0 2.4 3.1 2.9 2.7 3.0
Unit labour costs 2.9 2.7 1.7 0.6 1.5 1.4 1.6
Real unit labour costs -0.7 0.5 0.1 -1.0 0.1 -0.4 -0.3
Savings rate of households (b) - - 15.7 15.1 15.1 15.0 15.1
GDP deflator 3.6 2.2 1.6 1.6 1.4 1.7 1.9
Private consumption deflator 3.7 1.0 1.4 1.7 1.3 1.7 1.6
Harmonised index of consumer prices - 1.9 2.2 2.3 2.0 2.1 1.9
Trade balance (c) -0.4 0.5 0.2 -0.4 -1.8 -2.0 -2.0
Current account balance (c) -0.6 0.8 0.2 -0.7 -0.8 -0.9 -0.8
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -0.6 0.8 -0.3 -0.6 -0.8 -0.9 -0.8
General government balance (c)(d) -2.8 -3.2 -4.1 -3.7 -3.2 -3.5 -3.5
General government gross debt (c) 41.6 58.8 63.2 65.1 66.5 67.1 68.0
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

60
9. Ireland
Growth to continue, fuelled by domestic demand

Activity in 2005 exporting sectors. For the year as a whole, real GDP is
estimated to grow just below 4½%, as in 2004.
According to preliminary national accounts, real GDP
expanded by 4.1% on the year in the second quarter Prospects for 2006 and 2007
after a rather meagre increase of 2.1% in the previous
three months. In the first half of 2005, domestic GDP growth is forecast at 4.8% and 5.0% in 2006 and
demand was strong and appeared to be the main 2007 respectively, close to the rate commonly thought
driver of economic growth while the contribution to be sustainable in the medium term. Robust
from the external economy was negative. On the domestic demand is expected to continue to be the
domestic side, consumer demand slightly picked up main driving force of economic growth. Private
after a more muted performance in 2004. Investment consumption is underpinned by strong employment
expenditure also grew rapidly, mirroring very strong growth (albeit lower than in 2005), though recent
demand for equipment and continued buoyancy of the fluctuations in confidence suggest that the projected
construction sector. On the external side, figures for pick-up in consumer spending into 2006 might be
the first half suggest a fairly weak performance by rather gradual. Private spending is projected to
exports, reflecting a less favourable trading accelerate further and to reduce the saving rate in
environment. Imports put in a somewhat stronger 2007, in the year when the bulk of SSIA funds (a
performance, following the pick-up in consumer and government-sponsored saving scheme) reach
investment demand. For the third quarter, purchasing maturity. Investment in housing is projected to taper-
managers’ indices reported increased activity for both off over the forecast period, as the recent record
manufacturing and services. Confidence indicators, volumes of completions are unlikely to be repeated.
however, did not fully confirm the brightening of the However, part of the downward correction in the
outlook across sectors, as there have been some residential sector is expected to be offset by a rebound
fluctuations in consumer and retail trade sentiment. in commercial construction and strong infrastructure
investment. On the external side, services exports are
Despite some risk related to uncertainties stemming projected to put in a strong performance but the
from the external environment, prospects for the outlook for merchandise exports is somewhat less
second half of 2005 are positive. The economy’s positive. Import growth is forecast to accelerate into
momentum is supported by recent strong employment 2007, in line with the projected pick-up in consumer
gains (mainly concentrated in the construction sector), expenditure. As net profit outflows are expected to
boosted by record immigration and increased remain on an upward trend, the implied growth rate of
participation. Some easing of competitiveness Gross National Income is somewhat lower than that of
pressures on the back of the recent depreciation of the GDP. Overall, robust economic growth is projected to
euro might also allow for a stronger performance of continue, but developments in the international
economy and euro/dollar exchange rate remain the
key medium-term risks to an economy as highly
Graph 3.12: Ireland - GDP growth compared with the
e uro are a and growth contributions
globalised as Ireland.
yoy % ch.
10 Labour market, costs and prices
Forecast
8
In 2005, employment growth is set to strengthen to an
6 extremely robust 3.8%. In line with the projected
gradual easing back of construction output and strong
4 performance of the service sector, employment gains
2
will be somewhat weaker but still very robust in 2006
and 2007. Labour force growth, fuelled by significant
0 inward migration (notably from the new EU Member
00 01 02 03 04 05 06 07 States) and increased participation, is projected to
-2
keep up with the upward employment trend. The
Domestic demand Net exports unemployment rate is thus estimated to remain below
Euro area GDP growth IE GDP growth
4½% over the forecast period. In line with the data for
Note: contribution from statistical discrepancy is not shown the first half of 2005, per capita compensation is

61
Economic Forecasts, Autumn 2005 Ireland

estimated to grow at around 5% on the year in 2005. around 0.6 percentage points of GDP for a February
Some further easing of wage inflation is projected in 2005 court ruling on nursing home payments. This
2006 due to the completion of the current round of relatively favourable estimated outturn is mainly due
“benchmarking” awards to public sector workers, but to higher-than-expected tax receipts, including also
this is expected to be partly offset by relatively tight one-off income from special Revenue
labour demand. HICP inflation has somewhat picked Commissioners’ (Ireland’s tax collection agency)
up in the third quarter of 2005, partly reflecting investigations in 2005, and partly also on account of
adverse energy price developments, and is forecast to expected slight under-spending in capital outlays. The
reach 2.2% for the year as a whole. This annual rate is deficit is projected to fall slightly to 0.3% and 0.1% of
expected to moderate in the second half of 2006 due GDP in 2006 and 2007 respectively. Given the non-
to a base effect, before rising slightly again into 2007 indexed nature of the tax and social benefit system,
in line with the projected revival of consumer the no-policy-change assumption is made operational
spending. for 2006 and 2007 by freezing average tax rates and
adjusting social transfer payments by the forecast of
Public finances CPI inflation (with a small top-up). Government gross
In 2005, the general government deficit is estimated debt is projected on a modest downward trend just
to fall below ½% of GDP, which compares to the below 30% of GDP over the forecast period.
initial official target of 0.8% of GDP. The underlying
general government balance is even stronger as the
projected deficit includes higher net expenditure of

Table 3.9
Main features of country forecast - IRELAND
2004 Annual percentage change
bn Euro Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at previous year prices 148.6 100.0 5.4 6.1 4.4 4.5 4.4 4.8 5.0
Private consumption 66.3 44.6 3.7 3.5 3.4 3.8 4.9 5.3 6.0
Public consumption 23.3 15.7 2.5 7.4 3.5 2.4 3.0 3.0 3.0
Gross fixed capital formation 36.3 24.4 4.2 3.6 5.7 7.9 7.9 3.2 3.3
of which : equipment 7.9 5.3 4.5 2.3 0.4 5.3 16.8 3.5 6.5
Change in stocks as % of GDP 0.8 0.5 0.6 0.7 1.2 0.9 0.5 0.5 0.5
Exports (goods and services) 123.5 83.1 11.7 4.0 0.8 7.0 2.3 5.1 5.4
Final demand 250.2 168.4 6.8 4.2 2.6 5.6 3.8 4.7 5.1
Imports (goods and services) 100.7 67.8 9.3 1.8 -1.4 7.6 3.2 4.6 5.3
GNI at previous year prices (GDP deflator) 125.7 84.6 4.5 3.9 7.1 4.5 4.5 4.7 4.8
Contribution to GDP growth : Domestic demand 3.2 3.6 3.3 3.9 4.6 3.6 4.0
Stockbuilding 0.2 0.1 0.6 -0.3 -0.1 0.0 0.0
Foreign balance 1.9 2.5 1.8 0.8 -0.2 1.1 0.9
Employment 1.8 1.8 2.0 3.1 3.8 2.2 2.0
Unemployment (a) 12.5 4.3 4.6 4.5 4.3 4.4 4.5
Compensation of employees/head 7.1 5.1 5.6 5.5 4.9 4.5 4.5
Unit labour costs 3.4 0.8 3.1 4.1 4.3 1.9 1.6
Real unit labour costs -1.8 -4.1 1.0 1.8 1.0 -0.6 -1.0
Savings rate of households (b) - - 15.1 16.6 17.2 16.0 14.0
GDP deflator 5.3 5.0 2.0 2.2 3.2 2.5 2.6
Private consumption deflator 5.0 5.4 3.9 1.0 1.8 2.4 2.3
Harmonised index of consumer prices - 4.7 4.0 2.3 2.2 2.5 2.4
Trade balance (c) 10.0 25.1 21.8 19.8 18.0 17.5 17.0
Current account balance (c) -1.5 -1.0 0.0 -0.8 -2.2 -2.5 -2.8
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -0.6 -0.6 0.1 -0.5 -2.0 -2.3 -2.6
General government balance (c)(d) -3.8 -0.4 0.2 1.4 -0.4 -0.3 -0.1
General government gross debt (c) 82.8 32.4 31.5 29.8 29.0 28.7 28.2
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

62
10. Italy
Signs of a moderate recovery

Activity in 2005 expected to consolidate in 2006. GDP is forecast to

grow by around 1.5% in 2006, slightly above the
After two consecutive quarters of negative GDP estimated rate of potential growth.
growth at the end of 2004 and the beginning of 2005,
the Italian economy rebounded in the second quarter Although the main contribution to GDP growth in
of 2005. Robust private consumption and investment 2006 is expected to come from domestic demand, the
in construction, as well as strong exports, drove GDP forecast also projects an improvement in the external
up by 0.7%. Recent economic indicators point to contribution to growth relative to 2005. In particular,
positive growth in the second half of the year. exports are expected to accelerate, although to a rate
However, due to the decline in output in the first three of growth still well below that of Italy’s export
months of the year, GDP growth in 2005 as a whole is markets.
forecast to be only 0.2%, down from 1.2% in 2004.
Private consumption is expected to be supported by
The nearly flat growth in 2005 is the result of a weak healthy real disposable income growth (1.5%),
contribution of domestic demand and a negative resulting from further increases in employment and
contribution of the external sector. Private real wages. Wealth gains on households’ holdings of
consumption in 2005 has been supported by real and financial assets and a further expansion of
surprisingly solid employment growth. The negative borrowing could also provide some stimulus to
impact of higher energy prices on consumption has consumption. The household savings rate is projected
been partly offset by declines in other components of to stabilise at the 2005 level.
HICP inflation. Total investment is forecast to decline
by around 1% in 2005, as a result of a steep drop in Better demand prospects are expected, in turn, to
investment in equipment that has been partly offset by stimulate investment expenditure. Some of the pre-
positive growth in constructions. On the external side, conditions for a pick-up in investment are in place:
in spite of the projected recovery in exports in the business confidence and orders are rising; corporate
second half of the year, Italy is expected to record a balance sheets have improved and financing costs
large loss of market shares in 2005, caused by have decreased, as a result of the low level of interest
worsening cost and price competitiveness. rates and the rise in share prices. Companies will also
benefit from a reduction in employers’ social security
Prospects for 2006 and 2007 contributions of up to 1% introduced by the 2006
budget. However, capacity utilisation is still close to
Against the background of the assumed strong global its medium-term average.
growth, broadly stable exchange rates, favourable
financial conditions and stabilising oil prices, the The forecast for 2007 posits a continuation of these
recovery started in the second quarter of 2005 is trends. GDP growth is expected to slow down

Graph 3.13: Italy - Re lative exports price s and marke t Graph 3.14: Italy - Gove rnme nt gross de bt and primary
performance balance
2 index 2000=100 index 2000=100 -2
% of GDP 7
124 % of GDP
0 0
6
120
-2 2 5
116 Forecast
-4 4 4
112
-6 6 3

Forecast 108
2
-8 8
104 1
-10 10
96 97 98 99 00 01 02 03 04 05 06 07 100 0
95 96 97 98 99 00 01 02 03 04 05 06
Growth rate of exports of goods and services minus growth
rate of export markets Government gross debt - lhs Primary balance - rhs
Relative export prices - inverted rhs

63
Economic Forecasts, Autumn 2005 Italy

marginally, to 1.4%, as the contribution to growth forecast to fall to 0.6% of GDP in 2005, from 1.8% in
from the external sector returns slightly negative 2004. In cyclically-adjusted terms, the budget balance
amidst the assumed weakening in foreign demand and is expected to deteriorate by about half of a
further losses in price competitiveness. Domestic percentage point of GDP compared to 2004. Taking
demand is expected to continue growing by around into account the decline in the contribution from
1.5%, with a slowing down in investment expenditure temporary measures from 1.4% of GDP in 2004 to
compensated by slightly stronger consumption 0.5% of GDP in 2005, the structural deficit (defined
growth. as the cyclically-adjusted deficit net of one-off and
temporary measures) would be around half of a
Labour market, costs and prices percentage point of GDP lower than in 2004.
Reflecting the pick up in output and further effects In the draft budget for 2006, the government targets a
from the implementation of the labour market reforms reduction in the deficit to 3.8% of GDP, in line with
introduced since the mid-1990s, employment, the Council recommendation to Italy under Article
measured in full-time equivalents, is forecast to 104(7) of July 2005. When including the amendment
expand by 0.6% in both 2006 and 2007. The main decided by the government on 28 October, the draft
contribution to overall employment growth is likely to budget and an accompanying law decree combine
continue to come from the services sector. The rate of deficit-reducing measures estimated at 1.8% of GDP
unemployment is expected to fall to 7.5% in 2007. with new expenditures and tax cuts totalling 0.7% of
After declining in 2005, labour productivity is GDP.
forecast to pick up in 2006 and 2007. Together with The assessment of the 2006 draft budget has been
slightly lower wage inflation in the private sector and made difficult by the stepwise presentation of the
the reduction in social security contributions, this adjustment measures. On the basis of a cautious
should bring about a marked deceleration in unit evaluation of some of the measures in the budget, the
labour costs compared to 2005 and contribute to Commission services forecast the 2006 deficit at 4.2%
keeping core inflation below 2%. Due to the impact of of GDP. In particular, the savings on health care
higher oil prices, headline HICP inflation is forecast expenditure and on current expenditure of central and
to remain slightly above 2% in 2006, before declining local government are projected to fall short of the
to 1.9% in 2007. ambitious official targets. Ceilings on health care
The expected higher rate of productivity growth and expenditure have not been attained in the past and the
deceleration in unit labour costs will temper but not new procedures set in place to control health
halt the loss of international competitiveness. Since expenditure in 2006 will have to prove their
1999, Italy’s unit wage costs in manufacturing have effectiveness. Similarly, the planned cuts to the
risen by almost 20% more than in its euro area intermediate consumption of central and local
partners. In addition, high non-wage costs also weigh governments would imply decreases in nominal
on Italy’s competitive position. terms, which do not seem achievable given recent
expenditure trends and the fact that mechanisms to
Public finances durably contain intermediate consumption may need
further strengthening. The primary surplus is forecast
Statistical revisions carried-out in May increased the to remain at the 2005 level (0.6% of GDP). Net of
general government deficit in the order of 0.2% of cyclical factors, the budget and the primary balances
GDP for all the years from 2001 to 2004, on average. will remain broadly stable relative to 2005. Deficit-
The deficit is now reported at 3.2% of GDP in 2001, reducing temporary and one-off measures, in
2003 and 2004, and at 2.7% of GDP in 2002. Debt particular sales of real estate and revenues from
levels were also revised upwards. In particular, the revaluations of corporations’ assets, are estimated at
debt ratio for 2004 is now reported at 106.5% of GDP, around 0.4% of GDP.
up from the 105.8% of GDP notified in March.
The assessment of the 2006 draft budget carries both
The general government deficit is forecast to increase positive and negative risks. On the one hand, if
to 4.3 % of GDP in 2005 from 3.2% in 2004, in line mechanisms to enforce the ceilings on health care
with the government estimates. The primary surplus is

64
 Chapter 3
Member States, Italy

expenditure and the ambitious cuts on central and The government debt ratio is forecast to increase to
local government current expenditure turned out to be 108.6% of GDP in 2005, up from 106.5% in 2004,
fully effective, the deficit might be lower than thus interrupting the decline started in 1995. The
forecast. The possible postponement of expenditure negative impact of debt-increasing below-the-line
linked to the Lisbon agenda to 2007 might also operations is expected to more than offset the positive
improve the 2006 deficit figure. On the other hand, effect from privatisation receipts estimated at 0.3% of
even the attainment of the sizable savings on current GDP in 2005. Planned privatisation receipts of about
expenditure included in the Commission services 1% of GDP will contribute to the decline in the debt-
forecasts might prove challenging to carry-out. to-GDP ratio in 2006.
Moreover, the cuts in transfers to publicly-owned
companies may be difficult to sustain given their
current financial needs. Finally, the 2006 budgetary
forecast incorporates measures announced by the
Government but not yet approved by Parliament.
The forecast for 2007 of a deficit of 4.6% of GDP is
based on the customary no-policy-change assumption,
i.e. only measures already formally adopted by the
government are taken into account.

Table 3.10
Main features of country forecast - ITALY
2004 Annual percentage change
bn Euro Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 1351.3 100.0 1.9 0.4 0.3 1.2 0.2 1.5 1.4
Private consumption 812.6 60.1 2.1 0.4 1.4 1.0 1.0 1.4 1.6
Public consumption 260.1 19.2 1.7 1.9 2.3 0.6 1.1 0.6 0.6
Gross fixed capital formation 262.9 19.5 1.7 1.2 -1.8 2.1 -0.8 2.8 2.2
of which : equipment 114.6 8.5 2.8 -1.0 -5.2 1.4 -3.1 2.7 2.6
Change in stocks as % of GDP 4.8 0.4 0.7 0.3 0.6 0.5 0.5 0.5 0.5
Exports (goods and services) 360.0 26.6 4.9 -3.2 -1.9 3.2 0.1 4.0 3.2
Final demand 1700.3 125.8 2.4 0.2 0.5 1.5 0.6 2.1 1.9
Imports (goods and services) 349.0 25.8 4.8 -0.5 1.3 2.5 2.1 4.2 3.8
GNI at constant prices (GDP deflator) 1343.6 99.4 1.9 0.3 0.3 1.4 0.1 1.5 1.4
Contribution to GDP growth : Domestic demand 1.9 0.8 0.9 1.1 0.7 1.6 1.5
Stockbuilding -0.1 0.4 0.3 -0.1 0.1 0.0 0.0
Foreign balance 0.1 -0.8 -0.9 0.2 -0.6 0.0 -0.2
Employment 0.4 1.3 0.4 0.8 0.5 0.6 0.6
Unemployment (a) 9.5 8.6 8.4 8.0 7.7 7.6 7.5
Compensation of employees/head 7.6 2.5 3.8 2.9 2.9 2.6 2.7
Unit labour costs 6.0 3.4 3.9 2.4 3.3 1.6 1.9
Real unit labour costs -0.9 0.4 1.0 -0.2 0.9 -0.6 -0.3
Savings rate of households (b) - - 16.0 16.4 16.4 16.5 16.5
GDP deflator 7.0 3.1 2.9 2.6 2.4 2.2 2.2
Private consumption deflator 6.9 3.1 2.5 2.2 2.0 2.1 1.9
Harmonised index of consumer prices - 2.6 2.8 2.3 2.2 2.1 1.9
Trade balance (c) 0.9 1.6 1.2 1.0 0.5 0.4 0.6
Current account balance (c) 0.0 -0.3 -0.8 -0.4 -1.2 -1.2 -1.0
Net lending(+) or borrowing(-) vis-à-vis ROW (c) 0.1 -0.3 -0.7 -0.3 -1.1 -1.1 -0.9
General government balance (c)(d) -8.4 -2.7 -3.2 -3.2 -4.3 -4.2 -4.6
General government gross debt (c) 99.5 108.3 106.8 106.5 108.6 108.3 107.9
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

65
11. Cyprus
Steady growth and fiscal consolidation

Activity in 2005 rush in 2004 linked to strong domestic demand

expansion and one-off factors (reduction in car
In line with the strong growth performance recorded excises). However, high energy import price rises put
in 2004, when GDP growth picked up to 3.8%, upward pressure on nominal import growth and the
growth in the first two quarters 2005 reached 3.8% current account deficit is expected to increase slightly
and 3.5% year-on-year respectively. Economic to 5.8% of GDP.
activity continued to be mainly driven by domestic
demand, notably private sector consumption and Prospects for 2006 and 2007
investment, including construction. Concurrently,
external demand recovered as, inter alia, tourism Based on a continuation of the demand factors noted
arrivals rose by 6.4% for the first nine months, up for 2005, the forecast projects for 2006 and 2007 a
from growth rates recorded in previous years, while marginal strengthening of GDP growth to 4.0% and
import growth decelerated following the import spike 4.2%, respectively. Private sector consumption is
in 2004. Surveys indicate a continued positive outlook foreseen to increase by about 4% both years,
for tourism arrivals for the remainder of the year. consistent with wage developments and employment
growth. Investment growth is expected to remain
With uncertainties on oil price developments and strong at 5% by 2007. Public consumption is assumed
restrained EU growth prospects, the outlook for GDP to increase relatively modestly, by 2-2.7%,
growth for 2005 as a whole is set at 3.9%, similar to throughout. With a moderately positive EU growth
2004’s. Domestic private sector demand growth is outlook, export growth is projected to strengthen
projected to slow down after the surge in 2004 but somewhat in both years, with similar tourism arrival
remains a main growth factor, supported by a rebound growth rates as in 2005 and robust growth in non-
in net external demand. Consumption growth is tourist services. Import growth is expected to pick up
projected at 4.3%, in line with wage and employment with domestic demand in 2006 and 2007, while high
growth. After strong growth in 2004, investment oil prices further push nominal imports. Altogether,
expansion remains relatively buoyant at 4.5%, linked, the forecast projects a slight decline in the current
inter alia, to a more competitive environment account deficit to below 5% of GDP by 2007. Deficit
following EU accession. Interest rates have been financing through FDI and portfolio investment is
lowered by a total of 125 basis points so far this year, expected to remain unproblematic.
before and after smooth entry in ERM II in May 2005;
lower rates also should help stimulate demand. The Costs and prices, labour market
growth contribution from net external demand is HICP inflation for the first nine months of 2005
forecast to turn positive through a strengthening in reached 2.1% compared to the same period in 2004.
exports and deceleration in import growth after the This is marginally above the 2004 rate at 1.9%,
mainly as a result of higher energy prices, but still
Graph 3.15: Cyprus - Une mployme nt rate , re al wage slightly below the projected rise of 2.3% for the year.
growth and GDP growth
In 2006 and 2007 inflation is expected to gradually
% Forecast weaken again to around 2.1% as oil price pressures
6
abate. In May 2005 Cyprus successfully entered ERM
5 II. Following significant capital inflows interest rates
were lowered twice, while the Cyprus pound
4
remained in the upper fluctuation margin limits.
3 Overall, the real effective exchange rate has tended to
appreciate in the wake of some inflation pressures
2
(mainly one-off, through VAT increases linked to EU
1 harmonisation), leading to some price-
competitiveness loss.
0
00 01 02 03 04 05 06 07 With steady GDP growth, unemployment is projected
-1
Unemployment GDP growth to inch down to 4.8% this year, from a peak of 5.1%
Real wage growth last year, and to further diminish to 4.5% by 2007.

66
 Chapter 3
Member States, Cyprus

Wage moderation in the public sector and an expenditure are made toward year-end. Based on the
increasing share of foreign labour (currently about above, together with the base-year effect of a better-
14% of the total labour force, which includes than-expected 2004 deficit reduction to a total
commuting Turkish Cypriot workers) continue to adjustment of 2.2 percentage points and successful
exert some downward pressure on wages, which are negotiations with social partners on a few key planned
expected to increase between 1.5-2.0% in real terms, consolidation measures, the forecast projects a deficit
in line with policy to keep real wage growth below decline to below 3% of GDP this year, in line with
expected productivity growth, leading to real unit convergence programme commitments. On an
labour cost decreases of 0.4%-1.0%. unchanged policy basis, and corrected for one-off
(revenue) measures, a similar deficit is projected for
Public finances 2006, declining somewhat by 2007. Given these
Government revenues in Jan-August 2005 increased narrow margins, it remains important to keep up fiscal
by 17% and expenditure by 7%, leading to a balanced consolidation efforts unabatedly.
budget for the period (cash-basis). This can be On the same assumption, debt is projected to decline
attributed to the ongoing impact of one-off (especially from 72% of GDP in 2004 to below 68% by 2007,
tax amnesty) but also structural fiscal consolidation reflecting mostly the effects of improved primary
measures on expenditure and revenue sides. While balances already from 2005.
revenues were also supported by a domestic-demand
based growth composition, leading to extra tax
revenues, major parts of payments associated with

Table 3.11
Main features of country forecast - CYPRUS
2004 Annual percentage change
mio CYP Curr. prices % GDP 95-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 7216.0 100.0 4.7 2.1 1.9 3.8 3.9 4.0 4.2
Private consumption 4676.2 64.8 6.8 1.5 1.9 6.1 4.3 4.0 3.8
Public consumption 1323.1 18.3 4.3 7.3 5.1 -4.8 2.0 2.7 2.1
Gross fixed capital formation 1336.6 18.5 2.3 8.1 0.7 11.6 4.5 4.8 4.8
of which : equipment 455.3 6.3 6.8 11.8 -12.7 18.0 6.0 5.3 6.0
Change in stocks as % of GDP 158.5 2.2 1.0 0.8 1.3 2.7 1.2 0.9 0.8
Exports (goods and services) 3385.6 46.9 6.9 -5.2 -2.3 5.5 5.2 5.7 5.8
Final demand 10880.0 150.8 5.4 1.2 1.1 5.8 3.6 4.3 4.4
Imports (goods and services) 3663.4 50.8 6.8 -0.5 -0.5 9.7 3.1 4.7 4.8
GNI at constant prices (GDP deflator) 7013.0 97.2 4.3 3.4 2.9 3.6 4.1 4.2 4.3
Contribution to GDP growth : Domestic demand 5.4 3.6 2.2 5.3 4.1 4.0 3.8
Stockbuilding -0.7 1.1 0.6 0.8 -1.1 -0.3 0.0
Foreign balance 0.1 -2.6 -0.9 -2.4 0.9 0.3 0.4
Employment - 1.1 1.1 1.5 1.5 1.3 1.3
Unemployment (a) 4.7 3.9 4.5 5.2 4.9 4.8 4.6
Compensation of employees/head - 4.1 9.3 4.2 4.5 4.0 4.0
Unit labour costs - 3.1 8.3 1.9 2.1 1.3 1.2
Real unit labour costs - 0.8 2.9 -0.8 -0.3 -0.9 -0.9
Savings rate of households (b) - - - - - - -
GDP deflator 2.2 2.2 5.3 2.8 2.5 2.2 2.1
Private consumption deflator 1.6 2.5 3.6 2.2 2.6 2.3 2.2
Harmonised index of consumer prices - 2.8 4.0 1.9 2.3 2.1 2.1
Trade balance (c) -24.5 -27.2 -23.7 -25.7 -25.9 -26.7 -26.5
Current account balance (c) -2.8 -4.5 -3.0 -5.7 -5.8 -5.5 -4.7
Net lending(+) or borrowing(-) vis-à-vis ROW (c) - - - - -5.7 -5.4 -4.6
General government balance (c)(d) - -4.5 -6.3 -4.1 -2.8 -2.8 -2.4
General government gross debt (c) - 65.2 69.8 72.0 70.4 69.1 67.4
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

67
12. Latvia
Growth fever

Activity in 2005 maintaining high productivity growth) were not

achieved as assumed, there would be significant
According to preliminary national accounts, real GDP downward risks to the sustainability of expansion at
growth reached an all-time-high in the second quarter, the rates foreseen.
registering 11.6% year-on-year after an already robust
7.4% in the previous quarter. In the first half of 2005, Final domestic demand is expected to continue to
domestic demand remained high and external demand drive growth, primarily led by investment, with
accelerated. Judging from retail trade turnover, housing construction increasing strongly. Private
consumer demand continues to expand at a steady consumption is also expected to remain strong, largely
rate, fuelled by better access to consumer credit and because of employment growth, substantially higher
significant increases in real disposable income. real wages and better access to consumer credit. The
Investment grew very fast, reflecting strong demand continued low cost base and growing productivity
for equipment and continued buoyancy in the mainly due to high levels of investment will boost
construction sector. Export performance was export growth. Import growth is also expected to
particularly strong in the first half of 2005. Export remain robust due to the increase of investment and
values grew by more than 30 percent year-on-year, intermediate goods. Although import growth is
outpacing imports, which grew by around 25 percent. projected to slow somewhat, narrowing the trade
Even though, the external deficit remains large, the deficit, the negative net contribution to GDP growth
contribution to GDP growth of net exports will be from trade is expected to widen again in both 2006
negligible. and 2007. Throughout the forecast period, the current
account deficit is expected to narrow only marginally.
Overall, the prospects for the economy in the second
half of 2005 remain positive. The economy’s Labour market, costs and prices
momentum is supported by significant EU-funds-
related activity, increased labour participation and High growth has contributed to boost employment
declining unemployment. For the year as a whole, and to reduce unemployment. In line with the
GDP is estimated to grow by around 9%, just above projected expansion of construction output and strong
the 8.3% recorded in 2004. performance of the service sector, employment gains
are likely to remain robust in 2006 and 2007. Labour
Prospects for 2006 and 2007 force growth, after taking account of significant
outward migration (chiefly to the old EU Member
Growth prospects for 2006-2006 are also strong, with States) and negative demographic trends, is projected
an expected expansion exceeding 7% in both years, to remain sluggish. The unemployment rate is
close to the growth of potential output. However, if estimated to decrease steadily. Active employment
rate and quality of investment (thus contributing to measures may provide some help in softening
considerable regional development disparities. In line
with the data for the first half of 2005, per capita
Graph 3.16: Latvia - Price s and wage s
compensation is estimated to pick up sharply in 2005.
12 % Wages are expected to continue growing rapidly over
10 Forecast the next couple of years. Productivity growth in most
8 industries will remain faster than that of wages.
6 Since July 2004 HICP inflation in Latvia has been the
4 highest among the Member States; core inflation has
2 also been progressively increasing. Throughout 2005
a sharp pick-up in inflation has been reflected in all
0
indices, with that for producer prices outpacing
-2 consumer prices. Several external factors (e.g. high oil
-4 prices and the relatively high exchange rate peg) have
99 00 01 02 03 04 05 06 07 contributed to price growth. Food prices continue to
HICP ULC increase at a high rate. Administrative price changes
Labour productivity Output gap were less important in the first half of 2005, though

68
 Chapter 3
Member States, Latvia

newly approved gas tariffs will intensify the pressure The 2006 budget law provides for a 17.6% increase in
in the second half. The main risk to the inflation expenditure and a 19.2% increase in revenue. The
outlook is that price increases could become persistent attainment of the 1.5% of GDP deficit target seems
if strong demand continues to drive output above plausible given the growth and inflation outlook.
potential and feeds into inflation expectations. Taking However, the 2006 budget will not allow a mid-year
this into account, the current prospect is for HICP opening to increase expenditure as has been common
inflation for 2005 of around 6¾%, and only modestly in previous years. All together, the deficit is expected
lower in 2006. to remain at around 1.5% of GDP in 2006-2007.
Government debt is projected to remain below 15% of
Public finances GDP over the forecast period.
Generally, owing to the strong growth, fiscal targets
have been met or even exceeded. In 2005, the latest
figures confirm that the budget is so far strongly in
surplus vis-à-vis a deficit target of 1.6% of GDP for
the year as a whole. However, budgetary amendments
adopted in August foresee increases in spending of
about 1½% of GDP and will bring the deficit close to
the official target. The authorities plan a significant
increase in investment, largely based on higher levels
of EU financial aid, which has been rising since 2004.

Table 3.12
Main features of country forecast - LATVIA
2004 Annual percentage change
mio LVL Curr. prices % GDP 95-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 7335.1 100.0 4.8 6.4 7.2 8.3 9.1 7.7 7.1
Private consumption 4605.2 62.8 - 7.4 8.2 9.3 8.4 7.8 7.5
Public consumption 1476.3 20.1 - 2.2 1.9 2.1 2.4 2.6 2.6
Gross fixed capital formation 1908.3 26.0 - 13.0 10.9 17.3 16.5 10.0 9.5
of which : equipment - - - - - - - - -
Change in stocks as % of GDP 522.8 7.1 0.2 0.9 4.0 5.5 3.4 3.2 3.0
Exports (goods and services) 3239.3 44.2 - 5.2 5.0 9.3 13.6 12.3 11.2
Final demand 11751.9 160.2 - 5.8 9.2 10.9 9.2 8.8 8.3
Imports (goods and services) 4416.8 60.2 - 4.6 13.0 15.6 9.5 10.5 10.3
GNI at constant prices (GDP deflator) 7187.2 98.0 5.0 6.3 6.4 6.8 10.2 7.7 7.1
Contribution to GDP growth : Domestic demand - 8.3 8.5 11.1 10.8 8.6 8.3
Stockbuilding - -1.7 3.4 2.0 -1.7 0.0 0.0
Foreign balance - -0.2 -4.6 -4.7 0.0 -0.9 -1.2
Employment -1.6 1.6 1.7 1.1 0.9 0.7 0.6
Unemployment (a) 15.7 12.6 10.4 9.8 9.7 9.4 9.3
Compensation of employees/head 10.2 4.0 11.3 16.5 16.0 12.0 10.0
Unit labour costs 3.4 -0.8 5.6 8.8 7.3 4.7 3.3
Real unit labour costs -3.7 -4.0 2.0 1.5 1.0 -2.1 -2.6
Savings rate of households (b) - - - - - - -
GDP deflator 7.3 3.4 3.6 7.2 6.2 7.0 6.1
Private consumption deflator - 2.2 3.0 6.0 6.5 6.0 4.8
Harmonised index of consumer prices - 2.0 2.9 6.2 6.8 6.0 4.8
Trade balance (c) -14.4 -16.0 -18.1 -20.5 -18.5 -17.4 -16.1
Current account balance (c) -6.0 -6.7 -8.2 -12.6 -11.1 -10.5 -9.8
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -5.8 -6.5 -7.6 -11.6 -9.6 -8.5 -7.2
General government balance (c)(d)(e) -1.7 -2.3 -1.2 -0.9 -1.2 -1.5 -1.5
General government gross debt (c) - 14.2 14.6 14.7 12.8 13.0 13.2
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).
(e) Excluding second pillar pension funds (see for more details note 11 on concepts and sources).

69
13. Lithuania
Slower, but still robust growth

Activity in 2005 growth moderates.

Output is estimated to have grown by 6.4% in the first Import growth is forecast to stabilise in 2006-2007 at
half of 2005, with domestic demand remaining as the around 11% after slowing down in 2005. Export
main driver for growth. Preliminary data point that growth is expected to pick up significantly in 2005
growth accelerated to 7.6% in the third quarter of and maintain the impetus in 2006-2007, aided by high
2005 year-on-year. import growth in some of Lithuania’s main trading
partners (the CIS and neighbouring EU countries).
A deceleration of investment growth in the first half The negative contribution of net trade to growth is
of 2005 is seen as temporary, and investment is expected to remain broadly unchanged, though an
expected to lead growth in the whole 2005. Consumer improvement in the terms of trade leads to a reduction
spending is forecast to remain strong, as suggested by of the current account deficit to about 7% of GDP by
high growth of retail sales and bank credit. A drag 2007. Lithuania’s net borrowing position in the
from net trade continued in the first half of 2005 as balance of payments is anticipated to fall to about
import growth remained strong. But exports increased 5.3% of GDP in 2007, due to the positive impact of
significantly, stimulated by strong growth in the increasing capital transfers from the EU.
Commonwealth of Independent States (CIS) and
despite a sharp drop in electricity exports from Labour market, costs and prices
Ignalina Nuclear Power Plant (Lithuania’s major
power producer). The 12-month average HICP inflation accelerated to
2.7% in September 2005, mostly reflecting rising
Growth prospects in 2006 and 2007 energy, health-care, transport and some food prices.
However, monthly y-o-y inflation in the period May–
Output growth is expected to gradually weaken September 2005 turned out lower than expected in the
although remaining at around 6% and becoming more Commission services 2005 spring forecast, as core
balanced. Domestic demand remains the main driver, inflation remained low and one-off effects that created
despite a slowdown led by lower growth of private inflation pressures in May 2004 started fading away
investment and consumption. more rapidly than foreseen. Thus, the annual average
Investment is nevertheless expected to lead growth in HICP inflation forecast for 2005 is revised down to
2005-2007, aided by EU funds and favourable 2.6% (from 2.9% in spring).
financial conditions for private investment. In 2006- In 2006, inflation is projected to edge up to 2.8%. An
2007, the reduction of the personal income tax and initial slowdown, due to fading one-off effects that
higher disposable income growth are likely to arose in the early months of 2005, is expected to be
stimulate consumption, though a weaker growth rate followed by an acceleration in the second half of the
than in previous years is assumed as bank credit year. Inflation is foreseen to increase to 2.9% in 2007.
Core inflation is expected to remain low and rapid
Graph 3.17: Lithuania - GDP growth and its contributors productivity growth is likely to continue over the
14
yoy % ch. forecast period, but oil prices, several services prices
12
Forecast and wage growth are assumed to remain high. Risks
10
to the inflation projections are on the upside. High oil
8 prices and a strong reaction of wages and prices to
6 demand growth are the main threats, together with a
4 potential increase in gas prices, which is being
2 considered by Lithuania’s single gas supplier.
0
-2
Employment growth picked up in the first half of
-4 External
2005, while the unemployment rate declined further to
-6 Inventories below 10%. The labour market continued tightening
Domestic
-8 T otal growth
and earnings started accelerating rapidly. Some
-10 sectors are experiencing problems to balance supply
02 03 04 05 06 07 and demand of labour, reinforced by emigration.

70
 Chapter 3
Member States, Lithuania

Structural unemployment is high and thus the high the government deficits in previous years. A tax
unemployment rate is not very indicative of available reform was approved last June. Personal income tax
labour resources. will be lowered in two steps from the present 33% to
24% in 2008. The corporate profit tax will be
Employment growth is anticipated to peak in 2005 temporarily increased to 19% in 2006, but will fall
and remain positive over the forecast horizon. The back to the present 15% in 2008. A new tax on real
labour market is likely to continue tightening. estate was approved, but it is still unclear how it will
Nominal wage growth is expected to remain above the be applied. The general government deficit is
moderate trend of last years and surpass productivity projected to increase from 1.4% of GDP in 2004 to
growth. Current active labour market measures should 2% in 2005, mostly due to salary increases in the
improve labour availability, but are unlikely to offset public sector, higher pension benefits and rising
labour market imbalances in the short term. A investment. The deficit is forecast to decrease
personal income tax cut in July 2006 is expected to gradually to about 1.6% of GDP in 2007, on the back
slow down wage growth in 2006-2007, reducing the of robust tax revenue growth. The impact of the tax
gap with productivity gains and moderating the reform is likely to be broadly neutral until 2007, due
impact on unit labour costs. to the temporary increase of the corporate tax.
Public finances
Methodological changes regarding the classification
of compensation for lost (rouble) savings and real
estate restitutions resulted in a downward revision of

Table 3.13
Main features of country forecast - LITHUANIA
2004 Annual percentage change
bn LTL Curr. prices % GDP 95-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 61.9 100.0 4.5 6.8 10.5 7.0 7.0 6.2 5.8
Private consumption 40.4 65.3 - 6.1 12.6 9.7 8.2 8.0 7.2
Public consumption 11.0 17.8 - 1.4 3.8 7.5 5.2 4.9 5.2
Gross fixed capital formation 13.6 21.9 10.0 11.1 14.0 12.3 10.1 8.2 8.0
of which : equipment 5.4 8.7 - 10.8 7.5 24.9 12.7 10.8 8.2
Change in stocks as % of GDP 0.8 1.2 0.8 2.1 3.2 6.4 6.3 5.9 5.5
Exports (goods and services) 32.6 52.7 - 19.5 6.9 4.2 10.7 10.9 10.0
Final demand 98.4 159.0 - 10.9 10.4 10.0 8.8 8.3 7.8
Imports (goods and services) 36.5 59.0 - 17.7 10.3 14.8 11.5 11.4 10.5
GNI at constant prices (GDP deflator) 60.4 97.6 - 7.0 8.9 6.9 7.1 6.1 5.8
Contribution to GDP growth : Domestic demand - 6.3 11.6 10.2 8.6 8.1 7.7
Stockbuilding - 0.7 1.4 3.6 0.3 0.0 -0.1
Foreign balance - -0.1 -2.4 -6.8 -1.9 -1.9 -1.8
Employment -1.5 4.0 2.3 -0.1 1.6 0.7 0.6
Unemployment (a) 14.1 13.5 12.7 10.9 9.0 8.1 7.5
Compensation of employees/head 20.2 0.9 8.8 8.1 9.1 8.1 6.8
Unit labour costs 13.3 -1.7 0.7 0.9 3.6 2.5 1.6
Real unit labour costs 1.8 -1.9 1.8 -1.8 0.3 -1.6 -2.4
Savings rate of households (b) - - -2.9 -2.9 -2.6 -2.7 -2.8
GDP deflator 11.3 0.2 -1.1 2.8 3.2 4.1 4.0
Private consumption deflator - -0.1 -2.7 1.1 2.4 2.7 2.8
Harmonised index of consumer prices - 0.4 -1.1 1.1 2.6 2.8 2.9
Trade balance (c) -11.3 -9.4 -9.1 -10.6 -10.8 -10.7 -10.7
Current account balance (c) -8.9 -5.3 -6.9 -8.0 -7.4 -7.1 -7.0
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -8.9 -4.7 -6.5 -7.3 -5.9 -5.5 -5.3
General government balance (c)(d)(e) -3.8 -1.4 -1.2 -1.4 -2.0 -1.8 -1.6
General government gross debt (c) - 22.4 21.4 19.6 20.7 20.2 19.6
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).
(e) Excluding second pillar pension funds (see for more details note 11 on concepts and sources).

71
14. Luxembourg
Healthy growth but some clouds on the horizon

The situation in 2005 wage increases are projected between 2.5% and 3%
and residents employment is forecast to rise by 1½%
The Luxembourg economy has performed well in to 1¾% a year over the forecasting period..
2005 and real GDP growth should reach more than Consequently, the increase in real households
4%, only slightly less than the 4.5% recorded in 2004. disposable income will not be negligible despite the
The financial sector value added has risen by more relatively high inflation recorded in 2005 and
than 6%, thanks to the good health of financial projected for 2006 Similarly, investment by
markets. Industry has performed well too, even if the enterprises, which has been very subdued in 2004 and
figures might be somewhat inflated by the strong 2005 should accelerate appreciably in response to
growth of the energy sector. Hotels and restaurants rapid output growth. The more dynamic domestic
benefited from the fact that Luxembourg held the EU demand should also lead to a significant acceleration
presidency in the first half of the year. On the other in imports, which explains for a part why external
hand, retail trade is stagnating, reflecting the trade will be less supportive.
weakness of private consumption.
Labour market, costs and prices
Domestic demand has been rather subdued in 2005,
with private consumption growing by hardly more Reflecting the strong growth in output, employment
than 1%. Although unemployment remains relatively rose by about 3% this year. However, unemployment
low by EU standards, its rise in recent years is likely kept rising: with a 5.3 % unemployment rate this
to negatively affect consumer confidence. Similarly, year, the Grand-Duchy no longer has the lowest
gross fixed capital formation grew by merely 1½%. unemployment in the EU. Once again, job creation
Only housing showed some buoyancy, while mostly benefited non-residents, whose number rose
investment by the government and enterprises was by nearly 6% while residents employment only
weak. Actually, growth in 2005 was chiefly increased by about 1½%. This discrepancy probably
supported by external trade, especially in services, reflects mismatches between the skills (or absence
with both exports and imports of services rising by thereof) of unemployed residents and those required
about 10% in real terms. by the jobs created but it might also be the result of a
significantly higher reservation wage in Luxembourg,
Prospects for 2006 and 2007 related to the high level of wages and the generosity
GDP growth should slightly accelerate to about 4½% of the social security system. Due to this bias towards
in 2006 and 2007: the external sector will probably be non-residents, it increasingly seems that employment
less supportive than in 2005 but domestic demand has to rise by more than 3½% a year in Luxembourg
should be more dynamic. Private consumption should for unemployment to stabilise. Employment growth is
accelerate despite the projected rise in unemployment: projected to accelerate over the forecast period but
probably not enough to prevent unemployment from
continuing to rise, albeit at a slower pace. Moreover,
Graph 3.18: Luxe mbourg - Employme nt and
like in recent years, the rise in domestic employment
une mployme nt should considerably outpace the increase in resident
7 % employment.
employment yoy %
6 Inflation considerably accelerated in the course of
2005, mostly as a result of the surge in oil prices, with
5
the yearly rise in the HICP reaching 5.0% in October.
4 The national CPI, which excludes consumption by
non-residents and especially their large purchases of
3 car fuel, alcohol and tobacco products, neared 3%. In
2 unemployment rate
yearly averages, the HICP should increase by more
% active than 4% and the national CPI by more than 2½% this
1 population year. However, underlying inflation remains moderate
0
and is even decelerating. Inflation is also expected to
97 98 99 00 01 02 03 04 05
slow down during the projection period. However,

72
 Chapter 3
Member States, Luxembourg

due to the large carry over effect, both the national (27% of total planned revenues and 2% of GDP)
CPI and the HICP could post higher annual increases lower than projected in the 2005 budget. Clearly, the
in 2006 than in 2005. In 2007, on the contrary, both weakness in private consumption may have played a
indexes are projected to decelerate significantly to the role in this shortfall but, according to the latest
neighbourhood of 2%, as underlying inflation is available information, it appears that the largest part is
expected to remain moderate. due to massive and unexpected VAT reimbursements.
Public finance Since this VAT shortfall is not expected to repeat
itself in 2006, the rise in revenues should significantly
Since record surpluses were registered in 2000 and accelerate next year and the deficit should improve
2001 (6.1% and 6.5% of GDP respectively), the somewhat despite a continuously rapid rise in
position of general government finance has expenditure. However, at unchanged policy, the
continuously deteriorated. It posted a 1.2% of GDP deficit should deteriorate again in 2007, despite the
deficit in 2004. This deficit probably deepened to strong growth in GDP and employment, as the
about 2.3% of GDP in 2005 despite strong GDP and increase in expenditure is projected to remain faster
employment growth. Beside the rapid increase in than the rise in revenues.
expenditure (+8.0% for current expenditure and
+8.6% for total expenditure), the main factor behind
this deterioration was a very large shortfall in VAT
revenues. According to the latest estimates, these
VAT revenues should be about 540 millions euros

Table 3.14
Main features of country forecast - LUXEMBOURG
2004 Annual percentage change
mio Euro Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 25664.0 100.0 5.0 2.5 2.9 4.5 4.2 4.4 4.5
Private consumption 10404.0 40.5 3.3 3.2 1.6 1.4 1.2 2.5 3.0
Public consumption 4708.0 18.3 4.3 3.2 5.0 6.0 4.5 2.6 3.0
Gross fixed capital formation 4959.0 19.3 4.9 -1.1 -6.3 3.5 1.5 4.0 7.3
of which : equipment 1385.0 5.4 5.8 -2.5 -20.0 2.9 1.5 5.0 6.0
Change in stocks as % of GDP 40.0 0.2 1.3 -0.8 1.4 0.3 0.2 0.4 0.4
Exports (goods and services) 37522.0 146.2 7.5 -0.6 1.8 8.2 7.7 7.8 7.8
Final demand 57633.0 224.6 5.9 -0.4 2.2 5.7 5.6 6.2 6.5
Imports (goods and services) 31970.0 124.6 6.8 -2.6 1.6 6.8 6.7 7.6 8.1
GNI at constant prices (GDP deflator) 22643.0 88.2 4.3 0.7 -0.5 4.2 3.4 3.7 3.8
Contribution to GDP growth : Domestic demand 3.5 1.6 0.2 2.4 1.6 2.3 3.2
Stockbuilding 0.3 -1.7 2.1 -1.1 -0.1 0.2 0.0
Foreign balance 1.3 2.6 0.6 3.2 2.6 1.8 1.2
Employment 2.7 3.0 1.8 2.6 3.0 3.2 3.4
Unemployment (a) 2.5 2.8 3.7 4.8 5.3 5.6 5.8
Compensation of employees/head 4.8 3.7 2.1 2.6 3.5 3.2 3.0
Unit labour costs 2.5 4.2 1.0 0.6 2.3 2.0 1.9
Real unit labour costs -1.0 3.1 -1.0 -1.8 0.7 -0.3 -0.6
Savings rate of households (b) - - - - - - -
GDP deflator 3.5 1.1 2.1 2.5 1.6 2.3 2.5
Private consumption deflator 3.6 2.1 1.9 2.1 2.6 3.0 2.0
Harmonised index of consumer prices - 2.1 2.5 3.2 4.1 4.4 2.2
Trade balance (c) -11.6 -10.5 -10.6 -10.5 -12.3 -12.4 -12.1
Current account balance (c) 13.8 11.8 8.2 8.4 5.9 6.1 6.1
Net lending(+) or borrowing(-) vis-à-vis ROW (c) - - - - 5.9 6.1 6.1
General government balance (c)(d) - 2.1 0.2 -1.2 -2.3 -2.0 -2.2
General government gross debt (c) 8.1 6.8 6.7 6.6 6.8 7.0 7.3
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

73
15. Hungary
Repeatedly missed deficit target

Activity in 2005 Export growth is expected to remain steady during the

forecast period. Investments will continue to benefit
After a vigorous expansion in the second half of 2004, from extensive highway constructions in 2006 and
real GDP growth slowed down to 2.9% year-on-year 2007. Military expenditure amounting to 0.5% of
in the first quarter of 2005. This was the weakest GDP will be reflected in increased imports in both
growth rate since the third quarter of 2003, reflecting 2006 and 2007.
the weakening of export demand largely explained by
the deterioration of the growth outlook for the main Due to the fiscal expansion the current account deficit
EU trading partners. In the second quarter of 2005 will decline only slightly.
GDP growth picked up again and grew by 4.1% year-
on-year. The main driver behind GDP growth was the Labour market, costs and prices
strong performance in gross fixed capital formation Employment, still stagnating in the first half of 2005,
and net exports. Most of the increase in gross capital is expected to rise by about 0.5% in 2006 and
formation was realised in public infrastructure somewhat less in 2007. Real wage growth will ease
investment. Annual real GDP growth in 2005 is due to tighter labour market conditions. After a sharp
expected to remain around 3.7%. increase in the final quarter of 2004 and the first
The current account deficit is estimated to have quarter of 2005, the unemployment rate is projected to
remained close to 8% of GDP in 2005, increasingly increase, partly due to the stagnating labour demand.
financed by non-debt-creating inflows, mainly due to The inflation trend remains favourable, backed by the
the larger share of EU funds in the capital account. slowdown of wage increases, the strong value of the
forint and the intensifying competition following EU
Prospects for 2006 and 2007 accession. Annual consumer price inflation is forecast
to decelerate sharply to about 2% in 2006. This is
GDP growth is projected to remain firm in the supported by the cut in the VAT rate and benign
forecast period due to stable demand and export inflation expectations. It is projected to return to about
conditions. The composition of growth continues to 3% in 2007, with faster consumption growth and the
be favourable, supported by dynamic investment rise in the minimum wage posing a possible upside
activity, improving external demand conditions and risk.
moderate consumption growth. Private consumption
growth is projected to increase slightly in 2006, to Public finances
about 3.5%, fuelled by fiscal measures, notably the
reduction of the highest VAT rate of 25% to 20%, and Hungarian deficit figures have been characterised by
to stabilise around this rate in 2007. their regular ex-post upward revision due to statistical
reclassifications. Mainly as a result of the
reclassification of 13th month public sector salary, the
Graph 3.19: Hungary - Government de ficit and de bt 2004 deficit has recently been revised from 4.5% to
5.4%1 of GDP. Even taking into account the higher
Forecast
10 % GDP
2004 base level, the 2005 deficit is expanding.
% GDP
9
60 In 2005, the original deficit target of 3.6% of GDP
8
will be significantly missed for the fourth year in a
7
row with an expected outcome of above 6% of GDP,
6
50 despite some corrective measures taken in the first
5
half of the year. The main reason for this marked
4
deviation is a recent statistical clarification regarding
3 40 the planned sale of motorways worth almost 2% of
2 GDP, which does not reduce the general government
1 deficit as previously assumed by the Hungarian
0 30 authorities. In addition, a significant revenue shortfall
00 01 02 03 04 05 06 07
based on overly optimistic budget assumptions and an
Government deficit (lhs) Government debt (rhs) expenditure overrun due to the underestimation of

74
 Chapter 3
Member States, Hungary

open ceiling expenditures, leading to an additional both 2006 and 2007, while new public–private
slippage of 0.5% of GDP was acknowledged by the motorway investment projects worth about 1% of
Hungarian authorities, without deciding on corrective GDP will reduce the general government deficit. The
measures contrary to previous commitments. latter assumption is subject to risk.
For 2006, the authorities have submitted a draft In the light of increasing yearly deficit levels, the
budget of 4.7% of GDP which does not include the debt-to-GDP ratio is expected to almost reach the
appropriate recording of military aircraft delivery in 60% threshold by 2007.
2006. This is compared to a deficit target of 2.9% of
GDP contained in the convergence programme update
of December 2004. In this forecast the 2006 deficit is 1
According to the decision of the Hungarian authorities to avail
projected to be even higher, reaching 6.7% of GDP. themselves of the possiblity of the temporary reclassification of
The draft 2006 budget lacks significant structural second pillar pension funds inside the general government as
permitted by Eurostat until the March 2007 notification, this
reforms targeting expenditure reduction, while it forecast uses the official reclassified figures. This approach lowers
includes relevant tax cuts worth of about 1% of GDP, the deficit figures by 1.2-1.4 pps between 2004 and 2007.
mainly on VAT2. No significant changes are projected 2
The risk that large off-budget liabilities of up to 3% of GDP will
for the macroeconomic environment in 2007. Due to be included at some point into the general government budget
should be noted.
the second step of the tax cut programme the deficit
increases even further to 6.9% of GDP. The forecast
assumes that the accounting of military fighters will
increase the deficit by ½ percentage point of GDP in

Table 3.15
Main features of country forecast - HUNGARY
2004 Annual percentage change
bn HUF Curr. prices % GDP 95-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 20355.3 100.0 3.6 3.5 2.9 4.2 3.7 3.9 3.9
Private consumption 11187.8 55.0 - 10.3 7.7 3.0 2.9 3.9 3.4
Public consumption 4828.8 23.7 0.7 5.4 5.7 -1.9 0.2 0.5 0.2
Gross fixed capital formation 4616.0 22.7 6.2 9.3 2.5 7.9 7.0 6.8 6.6
of which : equipment 1943.3 9.5 - - - - 4.1 -3.9 7.2
Change in stocks as % of GDP 324.2 1.6 5.3 0.4 0.1 -0.9 -2.5 -2.0 -1.5
Exports (goods and services) 13238.3 65.0 19.8 3.9 7.8 14.9 10.3 10.3 10.0
Final demand 34195.2 168.0 - 4.8 6.6 7.7 6.6 7.5 7.2
Imports (goods and services) 13839.9 68.0 16.6 6.5 11.0 11.6 8.6 10.5 9.8
GNI at constant prices (GDP deflator) 19115.2 93.9 3.3 3.4 3.5 3.1 3.5 3.9 3.9
Contribution to GDP growth : Domestic demand - 8.8 6.1 3.4 3.6 4.2 3.9
Stockbuilding 0.6 -3.4 -0.3 -1.1 -0.4 0.4 0.4
Foreign balance 0.8 -2.2 -3.0 2.3 1.4 -0.4 0.1
Employment 0.4 0.0 1.3 -0.7 0.4 0.6 0.3
Unemployment (a) 8.0 5.6 5.8 6.0 7.0 6.9 6.7
Compensation of employees/head 16.0 12.7 9.7 8.2 5.5 5.2 4.5
Unit labour costs 12.4 8.9 7.9 3.1 2.1 1.8 0.9
Real unit labour costs -2.2 0.0 1.0 -2.8 -1.2 -0.9 -2.0
Savings rate of households (b) - - - - - - -
GDP deflator 14.9 8.9 6.8 6.0 3.3 2.7 3.0
Private consumption deflator - 3.6 4.5 7.5 3.6 2.1 3.0
Harmonised index of consumer prices - 5.2 4.7 6.8 3.7 2.0 3.0
Trade balance (c) -4.1 -3.2 -4.0 -3.0 -2.6 -2.7 -2.7
Current account balance (c) -7.7 -7.1 -8.7 -8.8 -8.4 -8.4 -7.7
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -7.4 -6.8 -8.8 -8.4 -7.8 -7.3 -5.9
General government balance (c)(d)(e) - -8.5 -6.5 -5.4 -6.1 -6.7 -6.9
General government gross debt (c) - 55.5 57.4 57.4 57.2 58.0 59.2
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).
(e) Including second pillar pension funds (see for more details note 11 on concepts and sources).

75
16. Malta
Capital transfers sustain growth

Activity in 2005 consumption and private investment, and to the low

import-intensity of infrastructure investment. As a
Sluggish growth continued in the first quarter of 2005, result, the contribution of the external sector to
but the acceleration of public investment brought growth is estimated at -0.3 of a percentage point.
about a rebound in the second quarter. GDP is now
projected to grow slightly below 1% for the year as a Prospects for 2006 and 2007
whole. Private and public consumption are expected
to remain negative, falling by 0.8% and 1.9%, GDP growth is projected to slightly decelerate to
respectively. The contraction of public consumption is 0.7% in 2006 and, then, to accelerate to a still
the consequence of ongoing fiscal consolidation. moderate rate of 1.1% in 2007. A modest recovery is
Investment will remain the most dynamic component projected for both private and public consumption.
of domestic demand, projected to grow by around Specifically, private consumption is expected to gain
10%. The buoyant performance of investment in the momentum and increase by 0.6% in 2006 and 0.9% in
midst of stagnation in the rest of the Maltese economy 2007. This small recovery of private consumption can
is due to the implementation of infrastructure projects be explained by a slight rise in disposable income, in
financed by EU Structural Funds and public works turn supported by a still-high-job-content of growth
funded through the Italian Protocol, which consists of over the forecast horizon. After a period of strong
grants from the Italian government for major fiscal consolidation, public consumption growth is
infrastructure projects. As in previous years, the high projected to increase by 1.1% in 2006 and by 1.3% in
level of public investment reflects the building of the 2007. While growing at lower rates than in 2005,
Mater Dei Hospital, which is now in its final stages. investment growth should remain strong. However,
This specific growth composition, which is this deceleration reflects the finalization of a number
particularly based on civil construction works, largely of infrastructure projects in the next two years.
explains why high investment growth is unrelated to Overall, the contribution of domestic demand to GDP
any other demand component. Overall, domestic growth should be around 1½ pps in both years.
demand is projected to contribute 1.2 pps to growth. Exports are expected to rebound moderately in 2006
Exports are expected to drop by around 2½%. This and accelerate in 2007. This rebound should largely
contraction is partly explained by sluggish growth of be supported by better prospects for the
Malta’s main trade partners, having a particularly semiconductor and tourism sectors. Imports are
significant impact on the stagnation of the tourism expected to be slightly more dynamic than exports,
sector. In addition, low productivity growth, due to the recovery of consumption. Consequently,
especially in the production of semiconductors, is the negative contribution of the external sector would
weighing on exports of goods. Imports are also reach 0.7 pp in 2006 and 0.6 pp in 2007.
projected to contract, by around 2%, due to weak The current account deficit is set to attain 6.8% of
GDP in 2006, slightly higher than in 2005 (6.7%), and
to worsen to 7% in 2007. Current account
Graph 3.20: Malta - General gove rnment finances
developments mirror those of the trade deficit, which
90 % of GDP % of GDP -12 should reach 17% of GDP at the end of the forecast
Forecast
80
-10
period, while the traditional surplus in the services
70 balance should remain fairly stable at around 8½% of
60 -8 GDP. This deficit is set to be only partially financed
50 by roughly constant capital transfers from the EU in
-6
40 nominal terms. Accordingly, the net borrowing
30 -4 position of the country is projected to widen from 4%
20 in 2005 to around 6% of GDP in 2007.
-2
10
Labour market, costs and prices
0 0
00 01 02 03 04 05 06 07 Despite slow GDP growth, employment is projected
Government debt ratio (lhs) Government balance (rhs) to keep rising, largely owing to the ongoing labour-

76
 Chapter 3
Member States, Malta

intensive infrastructure projects. In parallel, the government deficit is set to decrease to 3.0% of GDP
unemployment rate should marginally fall to 6.8% in in 2006 and to 2.5% of GDP in 2007. The projection
2007. With sluggish growth, inflationary pressures for capital expenditures incorporates the fall
come only from the energy prices increase: HICP associated with the finalization of the Italian protocol.
inflation is projected to decline from 3.1% this year to
2.6% in 2006 and 2.2% at the end of the forecast The general government gross debt in 2005 is
period. Unit labour costs are expected to grow by expected to remain at around 77% of GDP, slightly
2.3% in 2006 (1.3% in 2005), reflecting oil prices above its 2004 level. This figure takes into account
increase, but should ease again to 1.3% in 2007, in the effect of the privatization of the Malta
line with more stable energy prices. International Airport, to be accomplished in
November 2005. At unchanged legislation, the debt-
Public finances to-GDP ratio is expected to rise slightly to around
77½% of GDP in 2006, but a growing primary
After declining to 5.1% of GDP in 2004, the 2005 balance should lead to slight decrease in 2007 (77%).
deficit is expected to fall to 4.2% of GDP. Although These debt figures do not take on board the potential
Malta is implementing the measures planned in the effects of additional privatisation projects.
2005 budget, including expenditure cuts and revenue
enhancing measures, lower-than-expected GDP
growth is an obstacle to the achievement of the deficit
target set up in the Convergence Programme for 2005.
Under a no-policy change scenario, the general

Table 3.16
Main features of country forecast - MALTA
2004 Annual percentage change
mio MTL Curr. prices % GDP 95-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 1830.5 100.0 4.2 0.8 -1.9 0.4 0.8 0.7 1.1
Private consumption 1157.5 63.2 - -1.0 2.0 -0.5 -0.8 0.6 0.9
Public consumption 412.0 22.5 - 4.0 2.9 0.7 -1.9 1.1 1.3
Gross fixed capital formation 374.3 20.4 - -21.0 29.0 4.6 10.1 4.5 3.1
of which : equipment - - - - - - - - -
Change in stocks as % of GDP 22.3 1.2 0.4 -1.2 -0.4 1.2 1.1 1.0 1.0
Exports (goods and services) 1388.9 75.9 - 2.9 -2.5 0.3 -2.5 1.3 2.6
Final demand 3355.0 183.3 - -0.8 2.5 1.3 -0.6 1.3 2.0
Imports (goods and services) 1524.5 83.3 - -2.3 7.1 2.2 -2.0 1.9 2.9
GNI at constant prices (GDP deflator) 1845.8 100.8 4.0 0.2 -2.6 -0.6 0.8 0.7 1.1
Contribution to GDP growth : Domestic demand - -3.9 6.3 0.7 1.2 1.6 1.6
Stockbuilding - -0.3 0.8 1.7 -0.1 -0.2 0.1
Foreign balance - 4.9 -8.9 -2.0 -0.3 -0.7 -0.6
Employment 1.3 -0.7 -0.7 1.4 0.6 0.8 0.8
Unemployment (a) 6.3 7.7 8.0 7.6 7.2 7.1 7.1
Compensation of employees/head 5.3 2.7 1.2 0.6 1.5 2.2 1.6
Unit labour costs 2.4 1.3 2.4 1.6 1.3 2.3 1.3
Real unit labour costs 0.1 -0.7 -2.1 -0.4 -1.4 -0.5 -1.0
Savings rate of households (b) - - - - - - -
GDP deflator 2.2 2.0 4.6 2.0 2.8 2.8 2.3
Private consumption deflator - 1.6 0.7 3.4 3.2 2.8 2.4
Harmonised index of consumer prices - 2.6 1.9 2.7 3.1 2.6 2.2
Trade balance (c) -19.4 -8.9 -14.5 -15.8 -15.8 -16.3 -16.8
Current account balance (c) -7.9 0.3 -5.8 -10.5 -6.7 -6.8 -7.0
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -7.0 0.5 -5.6 -9.1 -4.0 -5.6 -5.8
General government balance (c)(d) - -5.8 -10.4 -5.1 -4.2 -3.0 -2.5
General government gross debt (c) - 63.2 72.8 75.9 77.2 77.4 77.1
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

77
17. Netherlands
The end of the tunnel, at last?

Recent economic developments the health care system on 1 January 2006, which will
result in a shift from the former to the latter of about
After a sharp and protracted slowdown from 2001 to 1.7% of GDP. This institutional change is the main
2003 and a short-lived recovery in 2004, 2005 was reason why private consumption is expected to
another gloomy year for the Netherlands. In the first decrease by about 3% in real terms and government
quarter of the year real GDP fell by 0.8% quarter-on- consumption to rise by more than 9% next year. This
quarter but it strongly recovered in the second quarter shift apart, private consumption should rise by about
(+1.2% quarter-on-quarter) and this recovery should ½% in 2006 as households’ gross disposable income
continue in the second half of the year. Nevertheless, will broadly stabilise in real terms after several years
on average, real GDP growth in 2005 will probably of decline. In 2007, private consumption is set to
not exceed ½%, down from 1.7% in 2004. accelerate to around 2%: households’ disposable
Private consumption, which declined in 2003 and income should rise significantly, for the first time in
stagnated in 2004, is expected to decrease again this years, essentially due to the recovery in employment;
year, by about ¼%. The main reason was a further on the other hand, their saving rate, which dropped
decline in households’ disposable income, by nearly considerably in recent years and thereby supported
1% in real terms, due to the continuing decline in consumption, is expected to rise again.
employment, renewed wage moderation after the Government consumption should increase by nearly
excessive wage increases of the late 1990s and early 2% in volume (without the effects of the health care
2000s, and a fall in non-labour income. Public reform) in 2006 and by about 3% in 2007. While
consumption stagnated and public investment government investment should still stagnate next year,
declined by about ¾%, reflecting the continuing effort gross fixed capital formation by corporations is
to further reduce the government deficit. Gross fixed forecast to begin to recover, rising by about 6½% in
capital formation by corporations was nearly flat but 2006, but this relatively high figure is inflated by
investment in dwellings still increased by 3%. some large projects in the transport sector. In 2007,
Prospects for 2006 and 2007 both government and private investment are projected
to speed up in line with the acceleration in growth.
GDP growth is expected to accelerate in the course of
2005. It is projected to reach about 2% in 2006 and Exports of goods and services are forecast to
about 2½% in 2007, essentially because domestic accelerate to more than 5% in 2006, but to remain
demand should be significantly more dynamic than in below the expansion of export markets as the large
recent years. Developments in both private and public loss in competitiveness recorded in recent years
consumption next year are blurred by the reform of continues to take its toll. However, thanks to renewed
wage moderation, unit labour costs should start
declining again after a slight surge in 2005 and the
Graph 3.21: The Ne the rlands - GDP growth and gap between the growth in exports and the export
e mployme nt growth market is expected to narrow markedly. Moreover, re-
yoy % ch. exports, which now represent nearly half of Dutch
5 Forecast
exports of goods, are forecast to remain very dynamic.
4
In 2007, export growth should accelerate to about
3 6¾%, close to the rise in exports markets. In parallel,
2 imports will accelerate too, pushed by the recovery in
1
domestic demand and by buoyant re-exports. As a
result, the contribution of foreign trade to GDP
0
growth should be significantly more limited in 2006
-1 and even more so in 2007 than it has been in recent
-2 years.
-3
95 96 97 98 99 00 01 02 03 04 05 06 07
Labour markets, costs and prices
Gross domestic product at 1995 market prices Employment decreased for the fourth consecutive
Employment year, by about ½% in 2004. As a result,

78
 Chapter 3
Member States, Netherlands

unemployment continued to increase from 5.5% in In order to support activity, and to improve
2004 to about 6%. With the recovery in output, competitiveness and households’ purchasing power,
employment is also projected to improve, rising by the 2006 budget provides for cuts in taxes as well as
about ½% in 2006 and 1% in 2007. Unemployment increases in spending for a total of half a percentage
should thus begin to decline marginally in 2006 and point of GDP. On the other hand, the recent rise in oil
more markedly in 2007. prices will lead to an increase in the price of natural
gas, which will result in additional revenues. As a
After surging in the late 1990s and early 2000s as a result, the general government deficit should stabilise
result of the overheating of the Dutch economy, in 2006 at around the 2005 level, despite the
inflation has considerably decelerated in recent years. acceleration in GDP growth. However, in 2007, on
The HICP rose by 1.4% in 2004. It should, however, the assumption of unchanged policy and with faster
accelerate this year to about 1.7%, mostly as a result output and employment growth, the deficit should
of the surge in oil prices, since wage increases are resume its decline and fall below 1½% of GDP.
very moderate. Inflation should accelerate to slightly
above 2% in 2006, due to the remaining impact of oil
prices, before sliding back somewhat in 2007.
Public finances
The general government deficit, which was brought
back from 3.1% of GDP in 2003 to 2.1% of GDP in
2004, continued to decline, to 1.8% of GDP in 2005.

Table 3.17
Main features of country forecast - NETHERLANDS
2004 Annual percentage change
bn Euro Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at previous year prices 488.6 100.0 2.5 0.1 -0.1 1.7 0.5 2.0 2.4
Private consumption 239.2 48.9 2.0 0.9 -0.7 0.0 -0.2 -3.0 1.8
Public consumption 118.5 24.3 2.6 3.3 2.4 0.0 0.1 9.5 3.0
Gross fixed capital formation 94.6 19.4 2.5 -4.5 -3.5 2.9 1.4 4.5 6.3
of which : equipment 28.3 5.8 3.8 -4.9 4.1 5.7 0.3 7.7 9.0
Change in stocks as % of GDP 0.8 0.2 0.3 -0.3 -0.1 0.2 0.0 0.0 0.0
Exports (goods and services) 328.1 67.1 5.4 0.9 2.0 8.5 3.3 4.8 5.3
Final demand 781.3 159.9 3.3 0.1 0.6 3.9 1.5 3.2 4.0
Imports (goods and services) 292.6 59.9 4.8 0.3 2.0 7.8 3.0 5.0 6.4
GNI at previous year prices (GDP deflator) 489.8 100.2 2.4 0.2 -0.9 1.8 0.5 2.0 2.4
Contribution to GDP growth : Domestic demand 2.1 0.2 -0.5 0.6 0.2 1.7 2.9
Stockbuilding -0.1 -0.6 0.2 0.2 -0.2 0.0 -0.1
Foreign balance 0.5 0.5 0.1 0.9 0.5 0.3 -0.4
Employment 1.2 -0.3 -0.9 -1.6 -0.6 0.5 1.0
Unemployment (a) 6.4 2.8 3.7 4.6 5.1 4.9 4.2
Compensation of employees/head 2.9 5.2 4.0 3.3 1.4 1.0 1.3
Unit labour costs 1.6 4.8 3.3 -0.1 0.3 -0.5 -0.1
Real unit labour costs -0.6 1.0 0.7 -0.9 -0.6 -1.4 -1.7
Savings rate of households (b) - - 13.9 14.0 12.2 12.5 14.0
GDP deflator 2.2 3.8 2.5 0.9 0.9 0.9 1.6
Private consumption deflator 2.5 3.0 2.2 1.1 1.7 2.0 1.8
Harmonised index of consumer prices - 3.9 2.2 1.4 1.7 2.0 1.9
Trade balance (c) 4.1 6.7 6.8 7.3 7.4 6.8 6.2
Current account balance (c) 4.0 6.0 5.8 6.1 6.0 5.4 4.8
Net lending(+) or borrowing(-) vis-à-vis ROW (c) 3.6 5.9 5.6 5.9 3.8 3.3 4.8
General government balance (c)(d) -3.2 -2.0 -3.2 -2.1 -1.8 -1.9 -1.5
General government gross debt (c) 66.5 51.3 52.6 53.1 54.0 54.2 53.8
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

79
18. Austria
Waiting for private consumption to respond to the tax cuts

Activity in 2005 The growth in private consumption is expected to

gradually accelerate in 2006 and 2007. However, it
Economic growth slowed down from 0.4% quarter- will still be moderate compared with historical levels.
on-quarter in late 2004 to 0.1% in the first three
months of 2005, accelerating again to 0.4% in the Investment in construction is projected to grow at a
following period. Private consumption had been solid rate, supported by the government’s measures
expected to grow significantly due to the substantial aimed at improving Austria’s infrastructure,
cuts in personal income taxes introduced in early undertaken mainly in order to address growing
2005. However, this scenario did not materialise, as unemployment. Equipment investment, which is
household demand remained subdued in the first two expected to slump in 2005 in the wake of the expiry
quarters of the year. Up to now, the effects of rising of the fiscal investment premium, should grow at a
oil prices seem to be outweighing the impact of the solid rate in the near future on the back of rising
expansionary fiscal policy. replacement demand and healthy profits.
As expected, gross fixed capital formation slumped in Export growth is expected to remain robust, but will
the first half of 2005, confirming that the fiscal not match the level of 2004, so that over the forecast
investment premium, which had expired in 2004, had horizon, there should be a shift from external to
given rise to a good deal of planned investment being domestic demand forces as the main driver of growth.
carried forward rather than creating additional
spending. With such weak domestic demand, net Labour market, costs and prices
export was again the main contributor to GDP growth. Employment is expected to grow throughout the
In the second half of the year, growth is supposed to forecast period but will be outpaced by the increase in
be driven also by private consumption as the effects labour supply. The government’s special measures to
of rising oil prices ebb away and consumers realise combat unemployment are likely to rein in the rising
the benefits of the tax reform. On an annual basis, real trend in 2006, but they will not suffice to bring the
GDP growth is projected to decelerate to 1.7% in record unemployment rate down from its peak. Due to
2005. the short-term nature of the measures, unemployment
growth is bound to accelerate in 2007.
Growth prospects for 2006 and 2007
Consumer price inflation is projected to stay above
Having slowed down significantly in 2005, GDP 2% in 2005 and 2006. It should ease down toward the
growth is expected to accelerate slightly in 2006 and end of the forecast period as the effects of higher oil
again in 2007, narrowing the negative output gap over prices start disappearing. As wages are expected to
the forecast period. develop in line with productivity, no inflationary
pressures should arise from labour costs.

Graph 3.22: Austria - Growth profiles of GDP and

Public finance
private consumption
5 yoy % ch. The second stage of the 2004/2005 tax reform came
Forecast
into force in 2005. The burden on the budget incurred
4
by the reform this year is estimated at 0.8% of GDP,
but tax revenue has so far turned out to be higher than
3
expected, mainly owing to higher proceeds from
VAT, corporate tax, capital gains tax and energy tax.
2 Also in 2005, the government announced two
packages of special measures aimed at fighting
1 unemployment. The May package, which
concentrated mainly on raising employment by
0 renovating highways, bridges and railways, will be
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
financed by the state-owned railway and motorway
GDP Private consumption companies, and by the sale of assets. Therefore,

80
 Chapter 3
Member States, Austria

according to ESA 95 accounting rules, it will be of both the central government’s job market package
neutral for government accounts in the short term. and those of regional authorities. Therefore, the
The package adopted in September, worth deficit in 2006 is projected at 1.8% of GDP, which is
approximately 0.1% of GDP, consists mainly of slightly higher than the government’s target in the
measures aimed at combating youth unemployment November 2004 update of the stability programme.
and helping women re-enter the job market. The cost
of the package will be borne by the 2005 and 2006 As the impact of the tax reforms wears off and GDP
budgets. growth rises, the deficit ratio should go down by ½
percentage point in 2007, which is still considerably
The 2005 budget will also be burdened with higher than the stability programme target.
additional expenditure on social transfers as the
number of unemployed turns out to be significantly The debt ratio is expected to decrease slightly over the
higher than foreseen by the government. forecast period, but it will nevertheless remain above
the 60% of GDP reference value.
However, the unexpectedly high tax revenue will
more than compensate for the additional expenditure.
Therefore, the deficit in 2005 should not surpass the
1.9% of GDP planned by the government.
2006 will see the peak of the revenue loss from
previous tax reforms, estimated at 1.4% of GDP. In
addition, the budget will have to bear a part of the cost

Table 3.18
Main features of country forecast - AUSTRIA
2004 Annual percentage change
bn Euro Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at previous year prices 237.0 100.0 2.3 1.0 1.4 2.4 1.7 1.9 2.2
Private consumption 132.0 55.7 2.3 0.3 1.6 0.8 1.2 1.6 2.0
Public consumption 42.3 17.8 1.9 1.1 1.7 1.0 1.0 1.0 0.9
Gross fixed capital formation 49.7 21.0 2.1 -5.0 6.1 0.6 0.5 2.5 2.9
of which : equipment 19.7 8.3 2.8 -9.6 8.1 0.5 -1.0 3.5 3.7
Change in stocks as % of GDP 1.0 0.4 0.5 0.5 0.5 0.5 0.3 0.4 0.4
Exports (goods and services) 120.9 51.0 5.2 3.5 2.3 9.0 3.9 5.2 5.0
Final demand 345.9 145.9 3.0 0.7 2.5 3.6 1.9 3.0 3.1
Imports (goods and services) 109.3 46.1 4.4 0.2 5.6 6.2 2.0 5.2 5.0
GNI at previous year prices (GDP deflator) 234.2 98.8 2.3 2.2 1.5 2.3 1.7 1.9 2.2
Contribution to GDP growth : Domestic demand 2.1 -0.7 2.5 0.7 0.9 1.6 1.9
Stockbuilding 0.0 0.0 0.0 0.1 -0.1 0.1 0.1
Foreign balance 0.3 1.6 -1.4 1.6 1.1 0.3 0.3
Employment 0.4 -0.1 0.1 0.0 0.4 0.6 0.6
Unemployment (a) 3.4 4.2 4.3 4.8 5.0 5.0 5.1
Compensation of employees/head 4.1 2.1 1.9 2.3 2.2 2.7 2.3
Unit labour costs 2.2 1.0 0.6 -0.2 0.9 1.4 0.7
Real unit labour costs -0.5 -0.2 -0.8 -2.1 -0.8 0.0 -0.6
Savings rate of households (b) - - 13.0 13.4 14.2 14.0 13.3
GDP deflator 2.7 1.3 1.4 1.9 1.6 1.4 1.3
Private consumption deflator 2.8 1.0 1.5 2.0 2.3 2.1 1.7
Harmonised index of consumer prices - 1.7 1.3 2.0 2.2 2.1 1.7
Trade balance (c) -3.3 1.7 0.5 1.5 1.8 1.4 1.3
Current account balance (c) -1.5 0.4 -0.5 0.3 0.8 0.6 0.6
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -1.5 0.2 -0.5 0.2 0.7 0.4 0.5
General government balance (c)(d) -2.9 -0.4 -1.2 -1.0 -1.9 -1.8 -1.4
General government gross debt (c) 57.0 66.7 65.1 64.3 64.3 64.2 63.6
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

81
19. Poland
Gradual recovery in the offing, but lack of fiscal reform

Activity in 2005 transferred to enterprises and political uncertainties

dissipate. In 2005 as a whole, real GDP growth is
Economic activity in the first half of 2005 did not projected to slow down to 3½%, down from 5.3% in
fully recover from the slowdown in late 2004. Real 2004.
GDP growth in the second quarter of this year was
2.8% year-on-year, up from 2.1% in the first quarter. Prospects for 2006 and 2007
After a surprising drop to 1% year-on-year in the first
quarter, investment growth rebounded in the second Domestic demand is expected to take over from net
quarter (3.8% year-on-year). Polish companies seem exports as the main driving force of GDP growth in
to have postponed their investment decisions pending 2006 and 2007. Both investment and private
the results of the parliamentary and presidential consumption growth are likely to pick up over the
elections. Moreover, there appears to be a lack of projection period. After the parliamentary and
capacity to absorb EU funds. Domestic demand fell presidential elections and the formation of a new
by 0.3% year-on-year in the second quarter for the government in the autumn, the period of political and
first time since the first quarter of 2002, as large-scale economic uncertainty will probably end, making
de-stocking cancelled out the modest growth of companies more inclined to invest. Furthermore,
consumption and investment. Overall, economic companies are starting to face capacity constraints,
growth in the first half of 2005 was mainly driven by while corporate profitability is strong and interest
net exports, as was the case in the past two years. Net rates are at a record-low level. Private consumption is
exports contributed to GDP growth by 2 percentage expected to increase as a result of the indexation of
points, while the contribution to growth of domestic pensions, direct payments to farmers and moderate
demand almost halved from the first quarter to the real wage growth. The administrative difficulties
second. The contribution of inventories to GDP has encountered in dealing with EU funds have so far
been on a downward trend since the beginning of limited Poland’s absorption capacity, but the situation
2004 and reached -2.2 percentage points in the second is likely to improve significantly in the coming
quarter. Large de-stocking indicates that enterprises months. Therefore, in 2006 and 2007, EU funds (up to
have adjusted their inventory levels to weaker 1.2% and 1.5% of GDP, respectively) will boost
demand. domestic demand and increase imports, which will
translate into a negative contribution of net exports to
Short-term indicators do not show any sign of GDP growth, despite the good performance by Polish
recovery, inter alia reflecting the uncertainty of the exporters.
pre-election period. Higher growth is expected in the
last quarter of the year as more EU funds are Exports started to grow again in the second quarter of
2005 after two quarters of decline, suggesting that

Graph 3.23: Polan d - GDP growth an d i ts con tribu tors Graph 3.24: Pol an d - Ge n e ral Gove rn m e n t fi n an ce s

% of GDP Forecast % of GDP

6 yoy % ch. 50 7
Forecast 45
5 6
40
4 5
35
3 30 4
2 25
20 3
1
15 2
0
10
-1 1
5
Ext ernal 0 0
-2
Output gap Invent ories
02 03 04 05 06 07
-3 Domest ic
T otal growt h Second pilar pension funds (rhs)
-4
GG deficit (rhs)
02 03 04 05 06 07 GG debt (lhs)

82
 Chapter 3
Member States, Poland

despite the considerable appreciation of the zloty medium-term target of 2.5%, despite moderate growth
since May 2004 and the economic slowdown in the of wages and unit labour costs.
EU, Polish exporters are again gaining market shares,
mainly in the countries on its eastern border (Russia Unit labour costs are projected to expand by 1.7% in
and Ukraine). The current account deficit is expected 2005, owing to a drop in productivity growth
to narrow to 3.2% in 2005. Growing imports in line combined with modest compensation growth. In 2006
with strengthening domestic demand will lead to a and 2007, unit labour cost growth is expected to ease
steady increase in the trade and current account to 1¼% as productivity growth recovers somewhat
deficits this year and next. However, higher transfers and compensation growth remains subdued. Although
from the EU will have a positive impact on both the nominal wages are expected to increase in order to at
current and capital accounts. In total, the current least sustain growth in real earnings, high
account deficit is projected to widen to 3.5% of GDP unemployment should exert a moderating influence
in 2006 and 3.9% in 2007, and will thus remain on wage growth.
within sustainable bounds. Public finances
Labour market, costs and prices Since the 2005 spring forecast, the picture of public
Labour market conditions have been improving since finances has changed significantly in view of
the second quarter of 2004. Overall, employment substantial data revisions following methodological
started to grow in 2004 and is expected to stay on an changes. The most noticeable change concerns the
upward trend over the forecast horizon, but the rate of 2004 general government deficit which was revised
employment still remains the lowest in the EU. As down to 3.9% of GDP from an earlier estimate of
economic activity gains momentum again the foreseen 4.8%. This significant reduction is mainly due to
employment growth should translate into a decline in revisions to the method of calculation of accrued taxes
the unemployment rate by more than 2 percentage and social contributions as well as revisions to the
points over 2005-07. This decline can be also partially accounts payable.
explained by a falling participation rate, reflecting the The general government deficit is expected to reach
extension of early retirement rights and a rapid growth 3.6% of GDP in 2005, in line with the target set in the
of the number of students. However, unemployment December Convergence Programme (3.9%).
will still be relatively high, at 16.5% of the labour However, there remains considerable uncertainty as
force, by the end of the forecast horizon, reflecting the regards the implementation of the 2005 budget.
deep-seated structural problems in the labour market. Higher revenues due to extra dividend contributions
Poland’s unemployment has a large structural from state-owned enterprises, together with lower
component, and labour market difficulties are expenditure for debt servicing may not be sufficient to
exacerbated by unfavourable demographic outweigh the effects of lower-than-expected GDP
developments and the ongoing restructuring process growth. Also an inflation rate below initial
in heavy industries and agriculture. Nevertheless, the expectations and the non-implementation of an
fall in unemployment since 2004 has been quite important part of the government’s multi-annual plan
significant compared to recent years, which bodes for fiscal consolidation (Hausner plan) are weighing
well for the near future. on the deficit.
After a sharp increase in 2004, annual HICP inflation Assuming that the new government does not
decreased to a record low of 1.4% in mid-2005 from significantly modify the draft budget, the general
3.6% on average in 2004. The one-off effects of EU government deficit is expected to stabilise in 2006
accession on prices faded out in the first half of 2005, despite an expected increase in revenues. In
but the unfavourable developments in oil and energy particular, the measures recently adopted by
prices are expected to push consumer price inflation Parliament – early retirement entitlements for miners,
up to 2¼% in 2005. A slightly negative output gap, the reimbursement of VAT increase for building
which is not likely to close over the forecast horizon, materials and the indexation of pensions in 2006 –
and low inflationary expectations are expected to keep will weigh negatively on the 2006 budget. Under the
inflation in 2006 and 2007 below the central bank’s no-policy-change assumption, the deficit is forecast to

83
Economic Forecasts, Autumn 2005 Poland

fall to 3.4% of GDP in 2007 as a result of stronger

growth. The deficit projections for 2006 and 2007 are
significantly higher than the targets set in the
December 2004 update of the Convergence
Programme. The forecast still includes the surplus of
the second-pillar pension funds, which is expected to
reach approximately 2% of GDP in 2005-07, within
the general government sector.
The gross debt figure is projected to increase only
moderately between 2005 and 2007. From 43.6% of
GDP in 2004, the debt-to-GDP ratio will increase to
some 46% in 2006, before stabilising in 2007.

Table 3.19
Main features of country forecast - POLAND
2004 Annual percentage change
bn PLN Curr. prices % GDP 95-01 2002 2003 2004 2005 2006 2007
GDP at previous year prices 883.7 100.0 4.8 1.4 3.8 5.3 3.4 4.3 4.5
Private consumption 573.5 64.9 4.8 3.4 3.0 3.2 2.8 3.4 3.5
Public consumption 149.7 16.9 2.3 0.4 0.1 1.4 2.5 2.8 2.9
Gross fixed capital formation 160.8 18.2 9.9 -5.8 -0.5 5.1 5.5 8.2 10.4
of which : equipment 56.0 6.3 - -9.6 - - 4.7 7.2 9.0
Change in stocks as % of GDP 15.6 1.8 0.9 -0.1 0.6 1.9 1.0 1.3 1.5
Exports (goods and services) 345.6 39.1 11.8 4.8 14.7 11.4 4.1 4.9 6.0
Final demand 1245.3 140.9 6.5 1.7 5.2 6.2 2.9 4.7 5.2
Imports (goods and services) 361.6 40.9 14.2 2.6 9.3 8.7 1.9 5.6 7.1
GNI at previous year prices (GDP deflator) 842.1 95.3 4.8 1.1 3.1 2.2 3.2 4.1 4.3
Contribution to GDP growth : Domestic demand 5.4 1.1 1.9 3.3 3.2 4.1 4.6
Stockbuilding 0.1 -0.2 0.6 1.3 -0.7 0.4 0.3
Foreign balance -0.7 0.5 1.3 0.7 0.8 -0.3 -0.4
Employment -0.4 -3.0 -1.2 0.0 1.0 1.2 1.2
Unemployment (a) 13.5 19.8 19.2 18.8 17.8 16.8 15.5
Compensation of employees/head 19.2 2.0 0.8 3.0 4.1 4.4 4.4
Unit labour costs 13.2 -2.4 -4.1 -2.2 1.7 1.3 1.1
Real unit labour costs 0.7 -3.7 -4.5 -5.0 -0.6 -0.8 -1.3
Savings rate of households (b) - - 8.1 5.2 5.7 5.6 4.3
GDP deflator 12.5 1.3 0.5 2.9 2.3 2.2 2.5
Private consumption deflator 13.0 1.6 0.7 3.3 1.9 2.1 2.3
Harmonised index of consumer prices - 1.9 0.7 3.6 2.2 2.3 2.5
Trade balance (c) -5.0 -3.8 -2.7 -1.1 -4.3 -4.4 -4.6
Current account balance (c) -3.0 -2.6 -2.2 -4.2 -3.2 -3.5 -3.9
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -3.0 -2.6 -2.2 -4.2 -3.2 -3.6 -3.9
General government balance (c)(d)(e) -2.7 -3.3 -4.8 -3.9 -3.6 -3.6 -3.4
General government gross debt (c) - 41.2 45.3 43.6 46.3 47.0 47.3
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).
(e) Including second pillar pension funds (see for more details note 11 on concepts and sources).

84
20. Portugal
Macro-economic imbalances looming large

Activity in 2005 both consumption and investment rates will be

dampened by a negative carry-over from the second
Imbalances continue to persist in Portugal. Having half of 2005. Public consumption will be held back by
recovered from recession in 2004, GDP is expected to a tightening of general government expenditure.
grow by a modest ѿ% in 2005.
The contribution of the external sector to growth is
Activity was relatively lively up to mid-2005, driven projected to increase. Exports are expected to
by private consumption. Yet the recent expansion accelerate helped by less adverse cost developments
seems to have been largely the result of purchases in manufacturing and by a boost in car exports, yet
carried forward against the announced VAT hike in foreign market shares will decline further. In fact,
July. According to recent indicators, the momentum export performance is hampered by a relatively
of household spending is now abating. Investment subdued demand and by increased competition from
continues to suffer from a shrinking construction emerging economies. Sluggish domestic demand is
sector and lacklustre business prospects. forecast to hold import growth down.
Exports are hampered by a weak competitive position, In all, the projected demand pattern will yield GDP
although the external sector’s contribution to GDP growth below 1% in 2006 and close to 1¼% in 2007,
growth was less negative than in 2004, owing to with the net external borrowing remaining high.
decelerating imports. Nevertheless, the jump in oil
prices has further exacerbated the imbalance in Labour market, costs and prices
Portugal’s net external position, which is forecast to
climb to a negative gap close to 8% of GDP by the Unemployment is projected to remain on an upward
end of 2005, with the deterioration in the income and trend until 2007. Job cuts have been particularly
capital balances also playing a role. marked in manufacturing, which should hold down
unit labour costs and help boost competitiveness.
Prospects for 2006 and 2007
Inflation abated until mid-2005, but the July increase
Domestic demand is forecast to slow down over the in the normal VAT rate from 19 to 21% is rekindling
forecast period. The cooling of private consumption is inflation. However, the hike has not been fully passed
assumed to be stronger in 2006 with a re-assessment on to prices. In 2006, the carry-over of the VAT
of income expectations by private households and a increase will be felt and some excise taxes will go up,
weaker labour market outlook. Investment is expected but the large negative output gap should limit the
to recover in 2007 reflecting already more scope for price increases. In 2007, the fading impact
encouraging business prospects and a slowly of the VAT hike on the annual rate of price increase
improving construction sector. In addition, in 2006, and more stable import prices may pave the way for a
deceleration of inflation.
Graph 3.25: Portugal - Net e xte rnal borrowing and its Public finances
composition
10 % of GDP The 2005 general government deficit is projected to
reach almost 6% of GDP after a deficit of 3% of GDP
5 in 2004. This jump is largely due to the government’s
decision to no longer implement one-off measures.
0
In 2005, both current revenue and expenditure have
-5 increased as a share of GDP. Tax revenues have been
growing in excess of what the relevant tax base would
-10 indicate, which suggests a further improvement in tax
collection, as already observed in 2004. In addition,
Forecast
-15 the VAT increase in July is adding to tax revenues.
1995 1999 2003 2007 Overall, the tax burden is expected to jump by nearly
Goods
Primary income
Services
Current transfers
1 percentage point. Strong upward pressure on
Capital transfers Net external borrowing expenditure has persisted. Old-age pension spending

85
Economic Forecasts, Autumn 2005 Portugal

grows strongly with a growing number of retirees and expenditure-curbing measures may yield limited
higher per capita benefits. Public consumption has short-term savings. Additionally, interest expenditure
been increasing due to wage increases above the will increase with rising debt and interest rates.
2003-04 average and rising health expenditure.
In 2006, the general government deficit is forecast at
This forecast already includes a sizeable corrective close to 5% of GDP. Based on the no-policy-change
package adopted in mid-2005. Measures on the assumption, the deficit will marginally improve in
revenue side comprise the increase in VAT, tax 2007. The trend in the primary deficit should be
increases for petrol and tobacco and a curb on tax somewhat better. On the back of high deficits and low
benefits. Regarding expenditure, efforts are being GDP growth, the government debt ratio will remain
targeted at the reform of pension schemes and public on an upward path.
administration, including career and wages scales. In
the meantime, there will be a freeze on promotions in
the public sector until the end of 20061. 1
Since some measures have not been announced in sufficient detail
for them to be properly assessed, they are not included in the
A marked improvement of the government balance is current forecast, e.g., private sector pension reform and the
projected on account of the corrective measures. government’s new career and wage scales. According to the
However, there are some risks that may bound its Portuguese authorities, these measures are still in preparation.
success. First, economic conditions may be adverse Everything else being equal, this may imply a difference between
this and other forecasts or policy targets.
with subdued domestic demand jeopardizing a
stronger expansion of tax revenues. Second, some

Table 3.20
Main features of country forecast - PORTUGAL
2004 Annual percentage change
bn Euro Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at previous year prices 141.1 100.0 3.0 0.5 -1.2 1.2 0.4 0.8 1.2
Private consumption 90.4 64.1 2.6 1.1 -0.3 2.3 2.2 1.0 1.5
Public consumption 29.2 20.7 4.1 2.3 0.3 1.2 1.0 -0.2 0.0
Gross fixed capital formation 30.5 21.6 3.7 -5.1 -9.9 1.3 -2.4 0.3 2.3
of which : equipment 9.6 6.8 3.7 -10.5 -6.5 6.2 -1.1 0.9 3.1
Change in stocks as % of GDP 1.2 0.8 0.5 0.7 0.6 0.8 0.7 0.7 0.7
Exports (goods and services) 40.8 28.9 6.3 2.0 5.0 5.1 0.9 4.7 4.6
Final demand 192.1 136.1 3.8 0.3 -0.7 2.9 0.9 1.5 2.1
Imports (goods and services) 52.1 36.9 6.9 -0.2 -0.1 7.0 1.7 3.0 4.1
GNI at previous year prices (GDP deflator) 139.3 98.7 3.0 1.8 -0.4 0.6 0.1 0.9 1.3
Contribution to GDP growth : Domestic demand 3.3 -0.2 -2.6 2.0 1.1 0.7 1.5
Stockbuilding 0.0 0.0 0.0 0.2 -0.1 0.0 0.0
Foreign balance -0.5 0.7 1.5 -1.0 -0.4 0.2 -0.2
Employment 0.5 0.4 -0.4 0.1 0.1 0.2 0.4
Unemployment (a) 6.3 5.0 6.3 6.7 7.4 7.7 7.8
Compensation of employees/head 13.1 4.4 2.6 3.0 3.0 2.9 3.0
Unit labour costs 10.4 4.2 3.4 1.9 2.7 2.4 2.2
Real unit labour costs -0.5 0.2 0.7 -0.9 0.7 0.1 -0.3
Savings rate of households (b) - - 10.8 10.0 9.8 9.5 9.4
GDP deflator 10.9 4.0 2.7 2.8 2.0 2.2 2.5
Private consumption deflator 11.0 3.3 2.8 2.7 2.2 2.7 2.2
Harmonised index of consumer prices - 3.7 3.3 2.5 2.2 2.7 2.2
Trade balance (c) -11.8 -9.8 -8.4 -9.7 -10.9 -11.2 -11.1
Current account balance (c) -4.8 -8.2 -6.1 -7.8 -9.5 -9.7 -9.4
Net lending(+) or borrowing(-) vis-à-vis ROW (c) - -6.4 -3.6 -5.8 -7.9 -8.1 -8.0
General government balance (c)(d) -5.3 -2.8 -2.9 -3.0 -6.0 -5.0 -4.8
General government gross debt (c) 53.6 56.1 57.7 59.4 65.9 69.8 72.1
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

86
21. Slovenia
Exports supporting economic growth

Activity in 2005 Prospects for 2006 and 2007

In 2004, economic growth was lower than initially In 2006, real GDP growth is forecast to accelerate to
estimated; real GDP grew by 4.2% (instead of 4.6%)1. 4%. Investment expenditure is expected to pick up as
The stimulus was mainly internal. The considerable production processes are adjusted in order to improve
build-up of inventories took place before EU the competitiveness of Slovene industry, and
accession as imports surged in anticipation of changes investment spending related to construction activity
in trade regimes with some countries of the former should also stay high, as evidenced by strong growth
Yugoslavia. At the same time, exports rallied, which in the number of construction permits issued. Private
helped to narrow the negative contribution of foreign spending, particularly the purchase of durable goods,
demand to GDP growth. is likely to remain buoyant. Domestic demand should
fuel the economy while foreign demand is also
Despite the bleak circumstances in the international expected to contribute positively to GDP growth
environment this year, GDP growth is likely to against the projections of healthy export growth to
decelerate only slightly, to 3.8%. After relatively continue.
weak activity in the first quarter, the economy
boomed in the second quarter. It seems, however, that With export markets recovering as oil prices decrease,
this was mainly due to (temporary) effects in foreign and expectations linked to the adoption of the euro
trade linked to the substantial increase in exports of that spur domestic consumption, GDP growth is
cars to France and Austria. Contrary to expectations, projected to accelerate further to 4.2% in 2007. As
export performance was not seriously affected by the imports are set to rise steadily in step with strong
slowdown in the main European trading partners and private and investment spending, the negative current
remained remarkably resilient in the face of oil price account is likely to deteriorate further. According to
increases. High commodity price levels, on the other the revised balance-of-payments statistics, which
hand, impinged on imports, and producers reacted by revealed a much bigger deficit for 2004, the current
limiting their investment activity. As also de-stocking account is expected to linger around -2% of GDP.
occurred capital formation plunged whereas
household consumption strengthened with a sustained Labour market, costs and prices
rise in employment, a marked increase of real wages In 2005, the situation on the labour market improved
and advantageous borrowing conditions (as of 2004, with a marked rise in employment and a sustained fall
domestic banks are also allowed to offer loans in in unemployment, together with a considerable
foreign currency to individuals). This year, the increase of gross wages compared to the year before.
economy will continue to be driven by domestic Admittedly, this is estimated to result from the
demand while the external contribution turns positive. methodological adjustment in the calculation of the
average wage to include enterprises with 1-2
employees. Furthermore, it also reflects the effect of
Graph 3.26: Slove nia - Price and wage de ve lopme nts the new tax regime, which ended favourable treatment
Forecast
for freelance fees and thus encouraged employers to
14 yoy % ch pay salaries instead. Wage increases in 2005 are,
GDP
12 therefore, likely to depart from the arrangement
whereby wage rise should lag behind productivity
10 nominal compensation growth by more than one percentage point. Although
per employee
8
the wage negotiations for 2006-2007 are still ongoing,
the immediate outlook for the labour market remains
6 HICP relatively positive as the unemployment rate is
projected to drop below 6%, in step with the robust
4 labour productivity GDP growth.
2
In 2005, against the background of oil price
0 fluctuations, consumer price inflation has become
98 99 00 01 02 03 04 05 06 07 volatile but continued to decline on average. In

87
Economic Forecasts, Autumn 2005 Slovenia

October, the 12-month moving average inflation rate Public finances

stood at 2.7%. Regular adjustments of excise duties to
temper the adverse effects of high oil prices helped in After revision of the general government deficits for
keeping the disinflation path smooth. Furthermore, the 2000-2004 to include the two extra-budgetary funds,
government has regulated administered price rises in further alignment with the Eurostat rules has caused
such a way as not to exert inflationary pressures, an additional substantial upward revision of the 2001
while market prices have clearly been driven down by and 2003 deficit. In 2005, however, the general
increased competition following EU entry. Moreover, government deficit is set to decline to 1.7% of GDP as
inflation has been falling against the stable exchange the shortfall of the new direct tax regime will be
rate ever since Slovenia joined ERM II. smaller than expected. Given the uncertainties
surrounding the future amendments to the tax
Assuming the continuation of policy measures geared legislation, the forecast for 2006 projects the deficit to
toward further disinflation, consumer prices will rise increase again against the decision to index pensions
only slowly. The commitment to adopt the euro in to wages and the commitment of the new government
January 2007 restricts the authorities’ room for to gradually abolish the payroll tax.
manoeuvre in setting prices while oil prices are
considered a risk factor.
1
Note that the methodological revision of the national accounts,
based on previous year prices and the allocation of FISIM by user
sectors, has slightly raised real GDP growth rates for 2000-2003.

Table 3.21
Main features of country forecast - SLOVENIA
2004 Annual percentage change
bn SIT Curr. prices % GDP 95-01 2002 2003 2004 2005 2006 2007
GDP at previous year prices 6251.2 100.0 4.1 3.5 2.7 4.2 3.8 4.0 4.2
Private consumption 3461.5 55.4 3.8 1.3 3.4 3.1 3.5 3.4 3.3
Public consumption 1219.1 19.5 3.3 3.2 1.6 2.9 2.6 2.7 2.9
Gross fixed capital formation 1506.0 24.1 9.8 0.9 7.1 5.9 3.8 4.7 5.5
of which : equipment 653.7 10.5 12.3 -2.7 11.4 9.4 2.2 3.0 5.3
Change in stocks as % of GDP 140.2 2.2 1.0 0.7 1.6 2.5 1.1 1.1 1.5
Exports (goods and services) 3761.5 60.2 6.1 6.7 3.1 12.5 9.1 7.4 7.3
Final demand 10088.3 161.4 5.3 3.9 4.1 7.4 4.8 5.1 5.4
Imports (goods and services) 3837.0 61.4 7.4 4.8 6.7 13.2 6.3 6.8 7.3
GNI at previous year prices (GDP deflator) 6193.5 99.1 4.0 2.7 2.5 3.9 3.9 4.0 4.2
Contribution to GDP growth : Domestic demand 5.0 1.6 3.8 3.7 3.3 3.6 3.8
Stockbuilding -0.1 0.8 0.8 0.9 -1.1 0.0 0.6
Foreign balance -0.7 1.1 -2.0 -0.4 1.6 0.4 -0.1
Employment - 1.5 -0.2 0.4 0.3 0.2 0.3
Unemployment (a) 6.8 6.1 6.5 6.0 5.8 5.7 5.6
Compensation of employees/head - 8.5 7.8 7.7 6.1 5.6 5.9
Unit labour costs - 6.5 4.7 3.8 2.5 1.7 1.9
Real unit labour costs - -1.3 -1.0 0.6 0.0 -0.7 -0.6
Savings rate of households (b) - - - - - - -
GDP deflator 9.8 7.9 5.8 3.2 2.5 2.5 2.5
Private consumption deflator 10.1 7.9 5.4 3.5 2.5 2.4 2.3
Harmonised index of consumer prices - 7.5 5.7 3.6 2.6 2.5 2.5
Trade balance (c) -4.5 -1.1 -2.2 -3.9 -3.4 -3.8 -4.0
Current account balance (c) -0.9 1.5 -0.3 -2.0 -1.6 -1.8 -2.0
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -0.9 1.5 -0.3 -1.9 -1.5 -1.8 -1.9
General government balance (c)(d) - -2.7 -2.7 -2.1 -1.7 -1.9 -1.6
General government gross debt (c) - 29.8 29.4 29.8 29.3 29.5 29.2
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

88
22. Slovakia
Domestic demand continues to drive growth

Activity in 2005 infrastructure projects. The investment boom should

then decelerate in 2007, under the assumption of no
Thus far, the available data suggest that economic new major foreign direct investments. As the
growth in 2005 remains strong at slightly above 5% increases of exports induced by the new production
and continues to be driven by domestic demand, capacities are initially accompanied by imports of
particularly by investment and private consumption. investment goods for these facilities, the external
Robust employment and real wage growth are contribution will probably not increase significantly
expected to lift private consumption growth above 5% until 2007.
in 2005. Gross fixed capital formation is estimated to The current account deficit is expected to widen
grow by more than 8% supported by the realisation of further to above 6% of GDP in 2005 as sharply
some big investment projects as well as by an increase increasing repatriated profits add to the negative trade
in public infrastructure investment. The contribution balance. Accelerating exports should lead to a
of net exports should remain in negative territory measured improvement in the current account balance
against the backdrop of lower growth of both exports in 2006 and 2007.
and imports which can be partly attributed to
interruptions in production caused by switches to new Labour market, costs and prices
product lines in the car manufacturing industry.
In the second quarter of 2005 total employment
Prospects for 2006 and 2007 (labour force sample survey) increased by more than
2% (y-o-y) and it has now been growing for a year. A
The economic expansion is anticipated to accelerate similarly positive trend is expected to continue
to around 5½% in 2006 and to above 6% in 2007. throughout the whole year leading to employment
Domestic demand is likely to remain the driving force growth for 2005 at around 1¾% while the
while export growth should speed up in 2006 as new unemployment rate should decrease to below 17%.
export capacity will gradually come on stream and the Similar, though slower, trends are also anticipated in
external contribution should thus become positive 2006 and 2007.
again.
Although the year-on-year consumer price inflation
Strong household credit growth is also likely to rate fell to 2% in August 2005 and averaged 2½%
continue to support private consumption growth over the first 8 months of 2005, the adjustments in
which should remain above 4% over the forecast administered prices and indirect taxes are estimated to
horizon. Gross fixed capital formation is predicted to drive it up to about 4% towards the end of the year.
further accelerate in 2006 as already pledged green- As these one-off effects fade out, inflation should fall
field investments are realised while the government, back to 2% in 2007 if the second-round effects and, in
supported by EU funds, continues to invest in large particular, nominal wage growth are kept in check.
Public finances
Graph 3.27: Slovakia - GDP growth and contributors
After the tax reforms were put in place in 2004, a
7 yoy % ch.
Forecast pension reform was launched in 2005. This reform
6
affects social contributions by redirecting 9 percent of
5
gross wages to a funded (second) pension pillar. Due
4 to a large public interest, revenue transfers to the
3 second pension pillar are anticipated at about ¾%,
2 1¼% and 1½% of GDP in 2005, 2006 and 2007
1 respectively.
0
From autumn 2005 until the end of the transition
-1
Domestic period granted by Eurostat in spring 2007, the
-2 Inventories
External Commission services’ forecasts will present the
-3 T otal growth general government deficit net of the pension reform
02 03 04 05 06 07

89
Economic Forecasts, Autumn 2005 Slovakia

cost, that is, the second pillar pension scheme will be significant fiscal consolidation. In order to ensure
classified as government. sufficient public revenues the government adopted a
number of measures, the most significant being the
The general government deficit for 2005, net of the restriction of child tax allowances and increases in
pension reform cost and net of the cancellation of taxes on cigarettes and alcohol as well as in some
some developing countries’ debt amounting to about administration fees.
0.8% of GDP, is anticipated at around 3¼% of GDP
which is slightly lower than foreseen in the 2005 Under the customary no policy change assumption the
budget. This positive development is, however, budget deficit net of the pension reform cost will in
mainly driven by a lower-than-expected interest cost 2007 fall to about 2½% of GDP as a result of
of public debt. The primary deficit is estimated to be accelerating growth.
larger than originally planned as some of the financial
resources that were freed are being used to cover Gross public debt is estimated to decrease sharply to
other unplanned public expenditures. around 36¾% of GDP in 2005 as a part of the
privatisation revenues from previous years has been
The general government deficit net of the pension used to pay-off some of the country’s debts. In 2006
reform cost is for 2006 estimated at some 3% of GDP. and 2007, government debt is projected to slightly
Increases in public expenditure in the election year are increase but should remain below 40% of GDP.
anticipated to largely offset a favourable growth
performance as well as the positive trend in the
servicing costs of public debt preventing a more

Table 3.22
Main features of country forecast - SLOVAKIA
2004 Annual percentage change
bn SKK Curr. prices % GDP 95-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 1325.5 100.0 4.0 4.6 4.5 5.5 5.1 5.5 6.3
Private consumption 750.6 56.6 4.6 5.5 -0.6 3.5 5.4 4.6 4.8
Public consumption 269.0 20.3 3.5 4.9 2.7 1.1 2.4 3.3 2.8
Gross fixed capital formation 327.2 24.7 5.0 -0.6 -1.5 2.5 8.4 8.5 5.3
of which : equipment 200.1 15.1 7.1 1.7 0.6 9.7 8.1 8.3 5.2
Change in stocks as % of GDP 14.2 1.1 0.0 1.7 -0.3 2.2 2.6 2.0 0.5
Exports (goods and services) 1018.0 76.8 8.2 5.6 22.5 11.4 7.3 10.4 14.1
Final demand 2379.1 179.5 6.6 5.0 8.6 8.4 6.7 7.6 8.7
Imports (goods and services) 1053.6 79.5 10.7 5.5 13.6 12.7 8.2 9.6 11.0
GNI at constant prices (GDP deflator) 1312.3 99.0 4.1 4.5 4.5 4.5 2.7 5.8 6.3
Contribution to GDP growth : Domestic demand 4.7 4.0 -0.2 2.8 5.3 5.1 4.4
Stockbuilding 1.0 1.0 -2.0 2.7 0.5 -0.6 -1.5
Foreign balance -1.9 -0.4 5.5 -1.2 -0.7 0.9 3.4
Employment -0.5 -0.5 1.8 -0.3 1.8 0.9 0.8
Unemployment (a) 15.0 18.7 17.5 18.2 16.7 16.2 15.8
Compensation of employees/head 11.5 9.3 6.0 10.8 8.2 6.5 5.9
Unit labour costs 6.8 3.9 3.3 4.6 4.9 1.9 0.4
Real unit labour costs 0.3 -0.1 -1.3 0.0 2.1 -1.1 -2.3
Savings rate of households (b) - - 4.5 5.0 6.0 6.9 7.4
GDP deflator 6.4 4.0 4.7 4.6 2.7 3.1 2.8
Private consumption deflator 7.3 2.5 7.7 6.9 2.9 3.4 2.0
Harmonised index of consumer prices - 3.5 8.4 7.5 2.9 3.6 2.1
Trade balance (c) -7.8 -9.0 -2.3 -3.5 -4.9 -4.7 -2.2
Current account balance (c) -5.3 -7.3 -0.5 -3.4 -6.6 -6.2 -3.7
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -5.2 -7.3 -0.8 -3.3 -6.2 -5.7 -3.3
General government balance (c)(d)(e) -6.3 -7.8 -3.8 -3.1 -4.1 -3.0 -2.5
General government gross debt (c) - 43.7 43.1 42.5 36.7 38.2 38.5
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).
(e) Including second pillar pension funds (see for more details note 11 on concepts and sources).

90
23. Finland
Growth to rebound from temporary reversal

Activity in 2005 prices fell somewhat, while import prices increased

further.
Following a rate of 3.6% in 2004, real GDP growth
slowed down to about 1% year-on-year in the first Prospects for 2006 and 2007
half of 2005. Output edged down in the first quarter
by 0.1% from the previous period, owing mainly to a The economy is projected to return to and remain on a
decline in gross fixed capital formation and sluggish firm growth path throughout the forecast period.
industrial production. In the second quarter, GDP Survey indicators suggest that activity will pick up in
contracted by a further 1.6% from the previous the latter part of 2005, as industrial production and
quarter as the seven-week-long paper and pulp exports are strengthening while domestic demand
industry lockout that ended in late June weighed remains solid. The paper industry labour dispute is
heavily on growth. The lockout is estimated to shave deemed to have had only short-term temporary effects
roughly 1 percentage point off GDP growth for 2005. on the economy. Therefore, real GDP growth should
This includes the direct and indirect effects on other rebound to close to 3½% in 2006, partly boosted by
parts of the economy, e.g. transport, forestry logging the base effect, and then abate to its potential growth
and the chemical industry. rate of 2½%-3% in 2007.

Domestic demand was the driver of growth in the first Private consumption is expected to continue to give
part of 2005, while the contribution from net exports firm support to activity, underpinned by income tax
was more subdued than expected. Household cuts and healthy job creation. Public consumption is
consumption was fuelled by higher earnings, a pick- foreseen to increase modestly, given the efforts of the
up in employment and low interest rates. The upward central government to control expenditure. Investment
trend in total investment since summer 2003 was is projected to bounce back after a surprisingly weak
reversed in the first part of 2005, with investment performance in 2005 and provide a solid stimulus to
down by around 2% from 2004. Residential growth in 2006-2007. Net exports should increasingly
construction edged down slightly, while equipment contribute to growth. Exports are anticipated to
and machinery investment shrank markedly, by over rebound and gain further momentum due to strong
8%. In the first half of 2005, exports were surprisingly import demand from Russia. The electronics industry
strong despite the paper industry labour conflict. has remained competitive and the prospects for
However, part of the foreign trade was in transit exports of telecommunications equipment appear
exports, such as automobiles and telecommunications rather promising. Imports are expected to grow at a
products, which were imported to Finland, then firm pace on the back of lively domestic demand.
exported mainly to Russia. Consequently, import Labour market, costs and prices
growth was robust in the first part of 2005. The
weakening in the terms of trade continued as export Despite the slowdown of activity, employment has
increased further this year, by over 1¼% year-on-year
Graph 3.28: Finland - Industrial production and e xports up to September. As labour supply has expanded less
25 yoy % ch.
than employment, the unemployment rate fell to 8.3%
in September.
20
Recently, higher energy prices have exerted upward
15
pressures on HICP inflation, while tightening
10 competition in services, especially in
telecommunications, has kept price increases in
5
check. During the forecast period, inflation is
0 expected to stay at around 1½%.
-5 The centralised wage agreement, settled in late 2004,
-10 provides for moderate wage increases up to
96 97 98 99 00 01 02 03 04 05 September 2007. Assuming the usual positive wage
drift of about 1 percentage point, per capita wages are
Industrial production Exports
expected to increase on average by 3.0% in 2006-

91
Economic Forecasts, Autumn 2005 Finland

2007. However, higher growth in productivity appears The government debt ratio is projected to steadily
likely to limit the rise in unit labour costs to around decline to below 41% of GDP by the end of the
1% over the forecast period. forecast period.
Public finances
On the basis of the government’s medium-term
spending guidelines of spring 2005 and the budget
proposal for 2006, the general government surplus is
projected to fall slightly from over 2% of GDP in
2004 to 1¾% by 2007. The general government
surplus will rest solely on the surplus of social
security. Central government finances are expected to
be roughly in balance in 2005 and then slip into
deficit since the government has supplemented the
collective wage agreement by sizeable income tax
cuts of about 1% of GDP. Local government finances
will stay in deficit due to higher operating
expenditure, even with tax revenues projected to rise.

Table 3.23
Main features of country forecast - FINLAND
2004 Annual percentage change
bn Euro Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 149.7 100.0 2.4 2.2 2.4 3.6 1.9 3.5 3.1
Private consumption 77.7 51.9 2.2 1.5 4.4 3.2 2.8 2.6 2.4
Public consumption 33.7 22.5 2.0 4.3 1.5 1.6 1.8 1.6 1.5
Gross fixed capital formation 28.2 18.8 1.1 -3.1 -1.5 5.0 1.3 3.2 3.3
of which : equipment 8.0 5.3 1.5 -9.8 -6.9 8.2 0.3 4.9 4.1
Change in stocks as % of GDP 2.0 1.4 0.2 0.5 0.4 0.7 0.3 0.4 0.4
Exports (goods and services) 56.6 37.8 5.5 5.0 1.4 5.6 4.5 5.8 5.3
Final demand 198.2 132.4 2.7 2.6 2.1 4.2 2.8 3.6 3.4
Imports (goods and services) 48.5 32.4 4.4 1.8 2.9 6.0 5.3 4.1 4.1
GNI at constant prices (GDP deflator) 149.2 99.6 2.4 2.9 0.8 4.7 1.8 3.5 3.1
Contribution to GDP growth : Domestic demand 1.9 1.0 2.2 2.9 2.1 2.3 2.1
Stockbuilding -0.1 0.3 0.0 0.3 -0.3 0.1 0.0
Foreign balance 0.5 1.5 -0.4 0.4 0.1 1.1 0.9
Employment 0.0 0.9 0.0 0.3 1.3 0.7 0.7
Unemployment (a) 8.6 9.1 9.0 8.8 8.4 7.8 7.2
Compensation of employees/head 6.3 1.8 2.6 4.1 3.0 2.9 2.8
Unit labour costs 3.8 0.6 0.2 0.8 2.4 0.1 0.4
Real unit labour costs -0.7 -0.4 0.5 0.3 2.0 -0.4 -0.5
Savings rate of households (b) - - 7.8 9.6 8.9 9.3 9.4
GDP deflator 4.5 1.0 -0.3 0.5 0.5 0.5 0.9
Private consumption deflator 4.4 2.9 0.0 0.1 1.5 1.1 1.0
Harmonised index of consumer prices - 2.0 1.3 0.1 1.0 1.4 1.3
Trade balance (c) 4.9 9.6 7.9 6.9 5.1 4.8 4.7
Current account balance (c) 0.2 7.3 3.8 4.1 2.2 2.0 2.1
Net lending(+) or borrowing(-) vis-à-vis ROW (c) 0.4 7.4 4.4 5.0 2.3 2.0 2.2
General government balance (c)(d) 1.0 4.3 2.5 2.1 1.9 1.9 1.8
General government gross debt (c) 32.4 42.3 45.2 45.1 42.8 41.5 40.6
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

92
24. Sweden
Continued recovery after blip

Activity in 2005 consumption. While households have taken on more

debt, financial wealth has benefited from rising equity
The slowdown in growth that took place towards the and house prices, contributing to the maintenance of a
end of 2004 continued in the first quarter of 2005. relatively strong wealth position. A modest reduction
This slowdown affected exports and domestic of the saving rate is expected over the forecast period.
consumption in particular while investments
continued to expand strongly. However, national Public consumption is expected to increase, reflecting
account figures for the second quarter indicate a more stable local government finances and a
recovery, mainly led by stronger private consumption relatively expansionary 2006 central government
and a recovery in exports. Overall, GDP growth was budget. In investment, the conditions for a continued
up around 2% on the year in the first half of 2005. expansion, albeit at a decelerating pace, remain in
place: a benign demand outlook, favourable financing
Recent indicators are generally positive. Consumer conditions and a high capacity utilisation rate in
confidence has continued to show an increasingly manufacturing. A high rate of investment is therefore
positive picture both as regards household views on expected over the forecast period. Exports are
the economy as a whole and on their own economic expected to continue to grow relatively strongly both
situation. Industrial confidence has, however, fallen in 2006 and 2007, in line with world markets. Imports
back somewhat to around its long-term average while should also grow faster as final demand strengthens.
there is more optimism in services, retail trade and in Overall, net exports will only make a substantial
particular construction. contribution to growth again in 2007.
These prospects are expected to be confirmed in a Labour market, costs and prices
steady continuation of the recovery in the remainder
of 2005, with GDP growth of around 2½% led by Employment growth, after having been negative in
domestic demand. 2004, is expected to turn positive in 2005 and remain
so over the forecast period. The relatively strong rise
Prospects for 2006 and 2007 in economic activity foreseen over the 2005-2007
In 2006, economic growth is expected to be around period is expected to result in an improvement in the
3% with domestic demand driving growth while in labour market given that the very high labour
2007 the economy is expected to grow somewhat less productivity growth seen over the last few years will
but close to the potential growth rate moderate. Against this background and supported by a
significant increase in the volume of active labour
A resumption of employment growth will contribute market measures in 2006, the unemployment rate will
positively to household disposable income in 2006 decrease over the period. It should be noted that a
and 2007, enabling continued steady growth in private methodological change in the measurement of
unemployment increases the level by around 0.4%-
points from 2005 as compared to 2004 and earlier.
Graph 3.29: Swe de n - GDP growth compare d with e uro are a
and growth contributions
yoy % ch.
Inflation has continued to fall considerably, in spite of
5
Forecast
the significant recent rises in oil prices. The subdued
4
outlook for inflation has enabled the Riksbank to
continue reducing interest rates, with a further cut in
3 the repo rate of 50 basis points in June 2005.
2 The relatively weak developments in the labour
market have helped to contain wage demands and
1 wages are expected to continue to rise relatively
0
moderately, reflecting the current wage agreement for
99 00 01 02 03 04 05 06 07 private sector and central government, reached in the
-1 spring of 2004 and covering a period including 2006.
Domestic demand Net exports Recent wage agreements for local government
Euro area GDP growth SE GDP growth employees have resulted in slightly lower negotiated

93
Economic Forecasts, Autumn 2005 Sweden

wage rises than in the previous agreement. Against in 2007, as a result also of an improvement in the
this background, inflationary pressures continue to be labour market. It should be noted that Swedish
subdued. As demand and growth revive further in government accounts will include second pillar
2006 and 2007, inflation is expected to rise towards pension funds (contributing to improve the budget
2% during the course of 2007. balance by about 1% of GDP per year) until spring
2007.
Public finances
General government gross debt, mainly central
In 2005, the surplus in public finances is expected to government liabilities, is projected to rise as central
be around 1½% of GDP, similar to 2004. In both government is expected to remain in deficit over the
years, the budget has benefited from large one-off forecast period. The increase is nevertheless slower
corporate tax receipts amounting roughly to a than nominal GDP over the forecast period, resulting
cumulative 1% of GDP. in a fall in the debt ratio to close to 48% of GDP in
Sweden will continue to show budget surpluses over 2007.
the forecast period. Income tax cuts proposed in the
2006 Budget Bill, the last step of a phased income tax
reform, as well as additional labour market measures,
will contribute to an expansionary fiscal policy stance
that will reduce the surplus ratio in the government
finances in 2006 as compared to 2005. On current
policies, a slight rise in the budget surplus is projected

Table 3.24
Main features of country forecast - SWEDEN
2004 Annual percentage change
bn SEK Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 2545.8 100.0 2.0 2.0 1.5 3.6 2.5 3.0 2.8
Private consumption 1224.5 48.1 1.5 1.4 1.5 1.8 2.3 3.1 2.9
Public consumption 706.2 27.7 1.2 2.3 0.8 0.3 0.3 1.3 0.8
Gross fixed capital formation 407.2 16.0 2.0 -2.6 -1.5 5.5 8.2 6.1 4.9
of which : equipment 166.8 6.6 4.8 -3.6 -3.0 6.7 11.0 6.0 5.0
Change in stocks as % of GDP 3.6 0.1 0.2 0.1 0.4 0.1 0.2 0.3 0.3
Exports (goods and services) 1178.1 46.3 5.7 1.2 5.0 10.5 4.0 6.0 6.1
Final demand 3519.5 138.2 2.5 0.9 2.4 4.7 3.1 4.2 3.8
Imports (goods and services) 973.7 38.2 4.3 -1.9 4.9 6.9 4.8 7.2 6.4
GNI at constant prices (GDP deflator) 2575.1 101.2 2.0 2.6 1.7 4.8 2.5 3.1 2.7
Contribution to GDP growth : Domestic demand 1.5 0.9 0.7 1.9 2.5 2.9 2.5
Stockbuilding -0.1 -0.2 0.4 -0.3 0.0 0.1 0.0
Foreign balance 0.7 1.3 0.4 2.0 0.0 0.0 0.3
Employment 0.1 0.2 -0.2 -0.5 0.5 1.1 0.7
Unemployment (a) 5.1 4.9 5.6 6.3 6.8 5.9 5.6
Compensation of employees/head 6.4 2.9 3.0 3.4 3.5 3.5 4.0
Unit labour costs 4.4 1.1 1.3 -0.7 1.5 1.6 1.9
Real unit labour costs -0.5 -0.6 -0.8 -1.5 0.4 -0.3 -0.3
Savings rate of households (b) - - 11.5 11.4 11.6 11.5 10.9
GDP deflator 4.9 1.7 2.1 0.8 1.2 1.8 2.2
Private consumption deflator 5.3 1.8 2.3 1.2 1.0 1.5 1.8
Harmonised index of consumer prices - 2.0 2.3 1.0 0.7 1.4 1.8
Trade balance (c) 3.8 6.7 6.3 6.9 6.4 5.9 6.0
Current account balance (c) 1.0 5.4 5.9 7.8 7.0 6.3 6.1
Net lending(+) or borrowing(-) vis-à-vis ROW (c) 0.2 5.3 5.9 7.8 7.0 6.3 6.1
General government balance (c)(d)(e) -1.7 -0.3 0.2 1.6 1.4 0.8 1.1
General government gross debt (c) 59.8 52.4 52.0 51.1 50.6 49.4 47.8
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).
(e) Including second pillar pension funds (see for more details note 11 on concepts and sources).

94
25. United Kingdom
Catching its breath

The economy in 2005 domestic demand. For the year as a whole, net trade is
expected to be neutral in terms of contribution to GDP
UK GDP growth has slowed markedly since the growth, after the large negative contribution in 2004.
second half of 2004 and into 2005. Growth was 1.5%
year-on-year in the second quarter of 2005, down Prospects for 2006 and 2007
from 1.7% in the first quarter. By comparison, year-
on-year growth in the second quarter of 2004 was GDP growth is expected to pick up over the forecast
3.7%. The slowdown in the first half of 2005 has been period, rising to just above 2¼% in 2006 and around
reflected by lower growth in the service sector than in 2¾% in 2007, mainly thanks to expanding domestic
previous quarters, while manufacturing output demand driven principally by government
actually shrank over the period. consumption, investment and to a lesser extent private
consumption.
For 2005 as a whole, GDP growth is now projected at
just above 1½%, compared to 3.2% in 2004. Faltering Household consumption is expected to start to pick up
domestic demand is chiefly responsible for the sharp a little in 2006, and then settle at a moderate but
slowdown, in the second quarter of 2005 growing by significant rate of growth by 2007. The private
only 1.3% over the previous year, down from 3.7% consumption pick-up is supported by a labour market
for the whole of 2004. Household consumption expected to remain relatively firm. A projected
appears to have been hit by a cooler housing market increase in the saving rate from the very low levels in
and the impact of higher interest rates on highly- 2004 points to some balance sheet consolidation in the
leveraged household balance sheets, and is expected household sector.
to remain subdued for the rest of the year. Business investment is restrained by uncertainties
Total investment has also slowed compared to 2004. over the overall macroeconomic outlook,
Although government investment has grown rapidly, compounded by high oil prices. Against that
in line with budgetary plans, business investment has background, business will probably hold back on
not responded to favourable conditions (high expanding capacity in the short term. Nonetheless,
profitability, robust equity markets and low real business investment is expected to pick up in 2006
interest rates). Investment is expected to remain and 2007, eventually reacting to the favourable
subdued throughout 2005. conditions and high levels of profitability projected to
continue throughout the forecast period.
Net trade evolved erratically in the first two quarters
of 2005. Overall, however, data for the first half of Growth in government consumption and investment is
2005 show slower growth of imports compared to expected to play an important role in supporting
exports, consistent with the observed slowdown in domestic demand during the economic slowdown.

Graph 3.30: Unite d Kingdom - Contributions to GDP Graph 3.31: Unite d Kingdom - Ge ne ral gove rnme nt budge t
growth balance and inve stme nt
5 yoy % ch. Forecast Forecast
3 % of GDP
4 2

3 1

2 0

1 -1

0 -2

-1 -3

-4
-2
99 00 01 02 03 04 05 06 07
00 01 02 03 04 05 06 07
Domestic demand Net exports
Goverment Fixed Capital Formation Net lending
Euro area GDP growth UK GDP growth

95
Economic Forecasts, Autumn 2005 United Kingdom

Government gross fixed capital formation should only to decrease in the last year of the forecast as
grow strongly in 2005 and 2006, consistent with growth picks up.
government plans to increase investment in public
services. Beyond that, government investment growth Public finances
is planned to slow significantly in 2007. According to data released in August, the general
On the external side, the estimates project a smaller government deficit reached 3.2% of GDP in the
decline of the UK’s share of world trade than in the 2004/05 financial year2 (running from April to
recent past. Net trade contributes positively albeit March). Given the more subdued short-term
modestly to growth. prospects, the deficit is expected to widen to just
below 3½% of GDP in 2005/06. The table below
In sum, the forecast shows the economy becoming details the projections for general government deficit
slightly more balanced, with domestic demand and debt on a financial year basis.
playing a lesser role in driving growth and net exports
becoming slightly positive for growth.
Public finances projections on a financial year basis (% GDP)
(Quarterly percentage change, seasonally adjusted)
Labour market, costs and prices
2004-05 2005-06 2006-07 2007-08*

Higher oil prices have heightened inflationary General governemnt deficit 3.2 3.4 3.2 3.0

pressures through higher fuel pump prices and

General governemnt gross debt 40.8 42.7 43.7 44.5
through the indirect effect on the cost of producing *The economic forecast for the first quarter of 2008 is produced on the basis of the last quarter of
goods and services that use oil as an input. Moreover, 2007

demand pressure on capacity is feeding through to

Growth of revenues from indirect taxes is subdued in
prices, including demand pressure in the rest of the
2005, reflecting the drop in output and consumption.
world which has helped push up import prices.
This is partly offset by the positive impact of higher
Persistently high oil prices are expected to result in oil prices on offshore corporation tax revenues.
HICP1 inflation in 2005 exceeding the Bank of Recent changes to the timing of offshore corporation
England’s 2% target. However, given the credibility tax receipts mean that most of the favourable impact
of the monetary policy framework, inflationary is expected to accrue in the last two quarters of
expectations are expected to remain anchored around 2005/06. This should boost overall corporation tax
the target and HICP inflation to decline towards the receipts, which were already buoyant in the first half
2% mark over the forecast period. of 2005.

The labour market continues to perform well. The The projections assume primary non-cyclical
unemployment rate remains around a historical low, expenditure in line with government plans throughout
yet with earnings growth stable. Temporarily higher the forecast period, although outturn data for the first
inflation is not expected to feed through into higher two quarters of 2005/06 point to the potential for
earnings growth, which is projected to remain under-spending this financial year, and thus the
consistent with achievement over time of the official possibility of a lower deficit than the central forecast.
inflation target. Moderate wage growth matches a
The budget deficit is projected to remain over 3% of
slight weakening of the labour markets in 2006, in
GDP in 2006/07. Nevertheless, the projected trend is
line with the slowdown of the economy.
expected to be a gradual improvement to around 3%
Employment growth is expected to moderate, partly in of GDP in 2007/08.
response to lower growth and partly because of the
already high UK employment rates. As the lagged 2
The EDP applies to the United Kingdom on a UK financial year
impact of slower growth is felt in the labour market, basis. Actual UK general government balance data reported here
unemployment is projected to rise slightly in 2006, apply the Eurostat decision of 14 July 2000 on the allocation of
UMTS receipts. The UK has not generally applied this decision in
domestic publication of its deficit data, which results in the net
1
Referred to in the UK as the CPI. lending balance on a Eurostat basis being approximately 0.1%
points of GDP per annum lower than reported in UK national
accounts from respectively 2001 and 2001/02 onwards.

96
 Chapter 3
Member States, United Kingdom

The gradual improvement of the budget deficit hinges General government gross debt is projected to
on three factors. increase from just below 41%% of GDP in 2004/05 to
around 44 ½ % of GDP in 2007/08.
First, a cyclical improvement from the pick-up of
growth over 2006 and 2007. The continued
profitability of UK companies throughout the forecast
period is also expected to sustain the corporation tax
base, depressed in the recent past by losses carried
forward from previous years;
Second, the projections include a structural
improvement in the ratio between direct tax receipts
and their respective tax bases in line with long term
trends;
Third, reflecting the government’s plans, overall
expenditure growth is projected to moderate slightly
in the 2007/08 financial year.

Table 3.25
Main features of country forecast - UNITED KINGDOM
2004 Annual percentage change
bn GBP Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 1163.9 100.0 2.5 2.0 2.5 3.2 1.6 2.3 2.8
Private consumption 761.2 65.4 3.1 3.5 2.6 3.6 1.7 1.8 2.1
Public consumption 246.0 21.1 1.2 4.4 4.5 2.6 1.2 1.8 2.7
Gross fixed capital formation 190.1 16.3 3.5 3.0 0.0 4.9 2.7 3.9 4.2
of which : equipment 69.1 5.9 3.4 0.3 -5.1 3.6 2.2 3.7 4.0
Change in stocks as % of GDP 4.7 0.4 0.2 0.3 0.4 0.5 0.3 0.2 0.2
Exports (goods and services) 291.1 25.0 4.7 0.2 1.2 3.9 4.6 5.1 5.2
Final demand 1493.1 128.3 3.2 2.6 2.4 3.7 2.2 2.7 3.2
Imports (goods and services) 330.1 28.4 5.8 4.5 1.8 5.9 4.2 3.9 4.4
GNI at constant prices (GDP deflator) 1189.4 102.2 2.6 3.3 2.5 3.3 1.8 2.1 2.8
Contribution to GDP growth : Domestic demand 2.8 3.6 2.6 3.7 1.8 2.2 2.7
Stockbuilding 0.1 -0.3 0.1 0.0 -0.2 -0.1 0.0
Foreign balance -0.4 -1.3 -0.2 -0.7 0.0 0.2 0.1
Employment 0.5 0.8 1.0 1.0 0.6 0.4 0.6
Unemployment (a) 8.5 5.1 4.9 4.7 4.6 4.9 4.7
Compensation of employees/head 6.5 3.6 4.8 4.2 4.1 4.5 4.5
Unit labour costs 4.4 2.4 3.2 2.0 3.1 2.6 2.3
Real unit labour costs -0.1 -0.7 0.3 0.0 0.8 0.0 -0.3
Savings rate of households (b) - - 5.3 4.4 4.7 5.1 5.9
GDP deflator 4.6 3.1 2.9 2.0 2.2 2.6 2.6
Private consumption deflator 4.6 1.5 2.0 1.3 2.4 2.4 2.0
Harmonised index of consumer prices - 1.3 1.4 1.3 2.4 2.2 2.0
Trade balance (c) -2.1 -4.5 -4.3 -5.2 -4.9 -4.7 -4.5
Current account balance (c) - -1.6 -1.5 -2.0 -2.1 -1.9 -1.6
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -1.4 -1.5 -1.4 -1.8 -1.8 -1.7 -1.4
General government balance (c)(d) -2.3 -1.7 -3.3 -3.2 -3.4 -3.3 -3.0
General government gross debt (c) 46.4 38.2 39.7 41.5 43.1 44.3 45.1
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources).

97
Chapter 4
Acceding Countries
1. Bulgaria
Strong growth with increasing external imbalances

Developments in 2005 Prospects for 2006 and 2007

After record growth of 5.6% in 2004, growth of real The pattern of strong economic growth based on high
GDP accelerated further to 6.2% in the first half of domestic demand is expected to continue into 2006
2005. Growth was again mainly driven by buoyant and 2007. Some signs of overheating have become
domestic demand fuelled by higher government apparent in 2005 and both the trade and current
expenditures in the run-up to the elections in June, account deficits have increased considerably, partly
higher real wage increases and continued strong credit also as a result of substantial oil price increases. A
growth especially in the first quarter. Gross fixed certain correction in 2006 may result from a further
capital formation expanded most strongly. It is dampening of credit growth, lower employment
expected that growth will calm down slightly in the growth and a slight moderation in real wage growth,
second half as additional measures to curb credit although pressures on wage increases will remain
growth, which were introduced in April, start to have fairly strong. Higher excise duties in 2006 should help
some effect. Floods during the summer have caused to contain private consumption, while a reduction in
some disruptions in particular in agriculture which pension contributions and some adjustments in
showed negative growth, but this is likely to be offset income taxation will at the same time increase
by additional flood-related expenditures in the further disposable incomes. Therefore, GDP growth is
course of the year. Imports have again expanded more expected to come down only slightly to around 5½%,
rapidly than exports, implying a strong negative which may be insufficient to prevent a further
contribution to growth from the external balance. widening of the trade deficit.
Consumer price inflation accelerated steadily during This will probably be followed by a consolidation of
the year as a result of rising oil prices and is expected growth at a high level in 2007 with investment growth
to reach an average 4.5%. Employment will continue remaining particularly strong as the catching-up
to grow, although at a decelerating rate due to process continues. Higher absorption of EU transfers
increasing bottlenecks in the labour market. High and potentially higher government expenditures due
import growth and rising import prices are to accession-related extra financing needs would also
contributing to a substantial further deterioration of contribute to the continuation of strong growth.
the current account deficit, which is expected to reach
12.2% of GDP in 2005. As in previous years, net Consumer price inflation is expected to remain high in
inflows of foreign direct investment are likely to 2006 in the wake of the substantial hike in oil prices
finance the current account deficit to a large extent. in 2005. Increases in excise duties will also have a
noticeable effect on consumer prices. Together with
continuing wage pressures this will lead to an
acceleration of inflation to above 5% in 2006. More
favourable developments in import prices and the
Graph 4.1: Bulgaria - Growth, current account deficit
and net FDI
anticipation of excise duty increases in 2006 should,
% GDP growth - lhs % of
however, allow inflation to decelerate to 3.5% in
7
Current account deficit - rhs GDP
14 2007.
net FDI - rhs
In line with the strong economic growth, the labour
6 Forecast 12 market situation should continue to improve. Further
employment growth will however be hampered by a
decline in the working-age population as well as
5 10 increasing mismatches in the labour market. While
employment growth will therefore probably decrease
over time, the unemployment rate is expected to come
4 8 down further and to drop below 10% in 2006.

3 6
2003 2004 2005 2006 2007

100
 Chapter 4
Acceding Countries, Bulgaria

Public finance External balances

Government revenues have again been much higher in The trade deficit is expected to widen to more than
2005 than planned, leading to the accumulation of a 17% of GDP in 2005 as a result of strong import
sizable budget surplus in the first half. Due to extra growth and higher import prices. While the gap in the
expenditures on flood relief and traditionally higher growth rates of imports and exports should start
expenditures in the last quarter, this surplus will come declining next year, the trade deficit will still increase
down in the remainder of the year. But the planned further. The continuation of this trend and
surplus of at least 1% of GDP appears realistic. improvements in the terms of trade should however
Planned cuts on pension contributions and income tax lead to a narrowing of the trade deficit in 2007.
will imply lower revenues in 2006. At the same time, Improvements in the services and transfer balances
further expenditures on flood relief will be necessary. should allow for a slight reduction of the current
Given the budget over-performance in recent years, account deficit already in 2006 before a smaller trade
the objective of a balanced budget should nevertheless deficit will lead to a more significant reduction in
be achievable. This should also be the case in 2007, 2007. Net foreign direct investments will continue to
despite potential extra financing needs related to largely finance the current account deficit in 2005 but
accession. In line with this fiscal stance and continued are likely to decline in the coming years as the
strong growth, gross public debt as a share of GDP privatisation process comes to an end.
will decline further to below 30% in 2007.

Table 4.1
Main features of country forecast - BULGARIA
2004 Annual percentage change
bn BGN Curr. prices % GDP 95-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 38.0 100.0 0.4 4.9 4.5 5.6 6.0 5.5 5.5
Private consumption 25.9 68.1 0.8 3.6 6.3 5.4 7.0 5.5 5.0
Public consumption 7.1 18.7 -2.2 4.1 7.6 3.6 7.5 5.0 5.0
Gross fixed capital formation 8.0 20.9 7.7 8.5 13.8 12.0 15.0 12.0 12.0
of which : equipment - - - - - - - - -
Change in stocks as % of GDP 1.0 2.5 0.5 1.1 1.8 2.5 3.1 2.8 2.7
Exports (goods and services) 22.2 58.4 - 7.0 8.0 13.1 9.9 10.4 10.5
Final demand 64.1 168.6 - 4.9 8.3 9.0 9.0 7.8 7.9
Imports (goods and services) 26.1 68.7 - 4.9 15.3 14.1 13.3 10.8 10.9
GNI at constant prices (GDP deflator) 37.0 97.3 0.4 5.6 2.7 7.2 6.0 5.6 5.6
Contribution to GDP growth : Domestic demand 1.6 4.7 8.2 6.8 9.4 7.6 7.4
Stockbuilding 1.2 -0.6 0.7 0.8 0.2 -0.2 0.1
Foreign balance - 0.8 -4.9 -1.9 -3.6 -1.9 -2.0
Employment -1.3 0.4 6.3 3.1 1.8 1.0 0.7
Unemployment (a) 12.8 17.8 13.6 11.9 10.7 9.9 9.4
Compensation of employees/head - 4.7 1.0 8.4 9.5 9.2 8.7
Unit labour costs - 0.2 2.7 5.9 5.2 4.6 3.8
Real unit labour costs - -3.4 0.4 1.6 1.9 -0.8 -0.9
Savings rate of households (b) - - - - - - -
GDP deflator 77.2 3.8 2.3 4.2 3.3 5.4 4.7
Private consumption deflator 75.0 4.0 0.5 3.4 4.2 5.0 3.0
Index of consumer prices (e) - 5.8 2.3 6.1 4.5 5.5 3.5
Trade balance (c) -4.3 -10.2 -12.5 -14.0 -17.3 -17.7 -16.9
Current account balance (c) -2.2 -4.7 -9.2 8.5 -12.2 -12.0 -10.8
Net lending(+) or borrowing(-) vis-à-vis ROW (c) - - - - - - -
General government balance (c)(d) 0.4 -0.2 0.6 1.3 1.0 0.0 0.0
General government gross debt (c) - 54 46.3 38.8 33.9 30.5 27.6
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources). (e) interim HICP.

101
2. Romania
Pro-cyclical policies cause widening of external imbalances

Recent economic developments caused by both high imports of goods and services
and decelerating exports reflecting rising real unit
In 2004, real GDP grew by 8.3%. Household labour costs and rapid appreciation of the exchange
consumption rose strongly by 10.8% on the back of rate in 2005. In 2005, the buoyant household
high real wage gains, strong consumer credit growth consumption will offset the lower momentum in
and the impact of a bumper harvest on rural incomes. export growth and the output loss caused by floods. In
The consumption binge was particularly pronounced 2006, GDP growth will benefit from the repair and
in the second half of the year with a growth rate of upgrading of damaged housing and infrastructure.
close to 13%, partly caused by pre-election hikes in Household consumption is expected to gradually
pensions and public sector wages. A solid expansion moderate in 2006-07 in tandem with more subdued
of gross fixed capital formation, by 10.1%, also wage dynamics and the diminishing effects of the tax
sustained growth. Exports increased by 14.1%, but cuts undertaken.
their growth slowed considerably over the year, and
they continued to be outpaced by rapid import growth GDP growth and components
of both consumer and investment goods. As a result,
net exports turned strongly negative, and the trade In 2005, private consumption is expected to remain
deficit widened to 9.0% of GDP. strong due to the effect of tax cuts on incomes and
hikes in public sector wages. In 2006, the fiscal
The increasingly unbalanced growth continued in the reform will be fully phased in and private
first half of 2005. Household consumption expanded consumption growth is likely to start to decline and
by 11.7%, while investment growth slowed to 7.6%, reach a more sustainable level in 2007. Investment
export growth dropped to 5.9% and import growth growth is expected to peak in 2006 due to floods
remained above 17%. Disinflation eased due to both repairs and will remain strong over the forecasting
demand-pull and cost-push factors, and the central period on the back of the ongoing modernisation of
bank was forced to raise its end-year inflation target production facilities, considerable FDI inflows and
to 7.5%. Pro-cyclical fiscal policy and slippage in public investment projects in preparation for EU
public sector wage policy bear a responsibility for the accession. The negative contribution to GDP growth
widening of macroeconomic imbalances. from net exports is expected to diminish somewhat
over the forecasting period.
Prospects for 2005 to 2007
Inflation
The outlook for Romania’s economy points to
continued strong growth, a gradual decline in inflation Inflation is expected to remain on a downward path,
and a considerable current account deficit, which is although disinflation is now expected to happen at a
slower pace due to excess demand and persistently
Graph 4.2: Romania - GDP and current account deficit high energy prices. Consumer price inflation fell to
12 % 11.9% on average in 2004, and it is forecast to fall to
9.1% in 2005 with food prices increasing only slowly
Domestic and import prices falling due to rapid appreciation of
demand Forecast
10 the currency. While high wage growth and the
current ongoing adjustment of administered prices in 2005
GDP
account
deficit
kept non-food and services inflation at its 2004 level,
8 cost-push factors are seen to become progressively
(% of
GDP) less important, which will help inflation to decline to
6
7.4% in 2006 and 6.0% in 2007. Productivity gains
due to industrial restructuring will help keeping
inflationary pressures down.
4
Labour market

2
The unemployment rate is expected to fall gradually
02 03 04 05 06 07
over the forecast period due to declining working-age

102
 Chapter 4
Acceding Countries, Romania

population and rising employment. Growth in private increase to 1.4% in 2006 and 2.2% in 2007.
sector employment will continue to mitigate the effect
of lay-offs in state-owned enterprises in 2005-06. External balances
Labour market trends should be interpreted with Strong domestic demand will keep import growth
caution due to data revisions, changing methodology high and, together with lower export growth, will
and the large informal sector, which the recent tax result in a widening trade deficit. The significant
reform may help reduce. improvement in the terms of trade in 2005, mainly
Public finances due to strong appreciation of the currency, will be
reversed. Increasing remittances and EU transfers will
Against the background of strong revenue collection mitigate the impact on the current account deficit over
of VAT, excises and customs duties as well as lower the forecasting period, which would nevertheless still
than budgeted public investments, the general widen considerably. High FDI inflows, improved
government deficit is expected to be contained to access to financial markets and large international
0.9% of GDP in 2005. In 2006, public expenditure reserves facilitate the financing of the growing deficit.
growth would continue to be affected by the slippage
in public sector wages and increasing expenditures for
floods repairs. As revenues are affected by lower
GDP growth and the revenue-to-GDP ratio has
declined as a result of the cuts in income and profit
taxes, the general government deficit is expected to

Table 4.2
Main features of country forecast - ROMANIA
2004 Annual percentage change
bn ROL Curr. prices % GDP 95-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 2387914.3 100.0 0.9 5.0 4.9 8.3 5.2 5.3 5.0
Private consumption 1896936.6 79.4 3.1 4.7 7.0 10.8 10.0 7.5 6.0
Public consumption 163774.8 6.9 0.7 -8.9 6.1 4.6 4.0 4.5 5.5
Gross fixed capital formation 532549.2 22.3 2.6 7.3 9.1 10.1 8.5 11.0 9.0
of which : equipment - - 3.1 - - - - - -
Change in stocks as % of GDP 17979.4 0.8 0.7 2.6 3.0 0.5 0.7 0.6 0.6
Exports (goods and services) 885604.8 37.1 10.4 17.6 11.1 14.1 7.5 7.9 9.3
Final demand 3496844.8 146.4 4.0 7.3 8.6 11.3 8.9 8.4 7.6
Imports (goods and services) 1108930.5 46.4 14.0 12.0 16.3 17.8 16.5 13.9 12.0
GNI at constant prices (GDP deflator) 2330318.3 97.6 0.8 4.6 3.4 8.2 5.4 5.5 5.1
Contribution to GDP growth : Domestic demand 2.8 3.5 7.6 11.0 10.1 8.8 7.4
Stockbuilding -0.6 0.2 0.4 0.1 0.0 0.0 0.0
Foreign balance -1.8 0.9 -2.8 -2.8 -4.9 -3.5 -2.4
Employment -2.2 - -0.1 0.4 1.6 0.5 0.0
Unemployment (a) 5.6 7.5 6.8 7.1 6.5 6.1 5.9
Compensation of employees/head 68.9 23.5 25.0 24.0 18.0 15.4 13.7
Unit labour costs 63.7 14.4 19.1 15.0 14.0 10.1 8.3
Real unit labour costs 5.2 - -0.7 -0.8 1.3 1.5 1.3
Savings rate of households (b) - - - - - - -
GDP deflator 55.6 23.6 19.8 15.9 12.5 8.5 6.9
Private consumption deflator 54.3 21.6 16.9 15.4 9.0 7.5 6.0
Index of consumer prices (e) - 22.5 15.3 11.9 9.1 7.4 6.0
Trade balance (c) -7.1 -5.7 -7.9 -9.1 -10.0 -12.2 -12.9
Current account balance (c) - -5.6 -6.2 -7.6 -8.1 -9.9 -10.4
Net lending(+) or borrowing(-) vis-à-vis ROW (c) - - - - - - -
General government balance (c)(d) - -2.0 -2.0 -1.4 -0.9 -1.4 -2.2
General government gross debt (c) - 23.3 21.3 18.5 16.2 15.6 16.2
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources). (e) interim HICP.

103
Chapter 5
Candidate Countries
1. Croatia
Modest rebound of growth after soft landing

Recent economic developments GDP remained unchanged during the last three
quarters at a little above 24.3%. However, the current
Economic growth continued to slow down to 3.5% account deficit increased to around 7% of GDP in the
year-on year-in the first half of 2005, as compared to twelve month to June, also as a result of a significant
3.8% in 2004, due to a sharp decline of growth in the increase in re-invested earnings.
first quarter (1.9%), followed by an acceleration of
growth in the second quarter (5.1%). In the first Prospects for 2005 to 2007
semester, gross fixed capital formation grew by 1.9%,
significantly lower than in 2004 (4.4%). Private In 2005, real GDP growth is expected to come down
consumption growth slowed to 3.4% from 3.9% in to 3.6%, slightly lower than in 2004, as a consequence
2004. Real export growth slowed to 4.2% as of lower growth of private consumption (down to
compared to a growth rate of 5.4% in 2004, while real 3.7% from 3.9% in 2004) and gross fixed capital
import growth increased to 4.1% from 3.5% in 2004. formation (down to 3.4% from 4.4% in 2004). Growth
As a result, net external demand posted a negative is forecast to accelerate to 4% in 2006 and 4.4% in
contribution to growth (-0.7 percentage points) in the 2007, based on stronger private investment in the
first semester, after it added half a percentage point in context of ongoing privatisation and enterprise
2004. Industrial performance remained strong during restructuring and a continued strong merchandise
the third quarter (around 6% year on year), while export and tourism performance.
construction activity decreased by 3.6% year on year Based on the assumption of a continuation of
during the same period. Growth of retail trade in real stability-oriented monetary policies moderate growth
terms slowed to 2% in July, before it picked up to of private consumption of 3.7% is foreseen in both
5.1% in August. 2005 and 2006, before it will pick up somewhat in
As a result of higher energy, transport and food 2007 as further EU integration increases consumer’s
prices, annual average inflation increased to 3.0% in confidence. Growth of gross fixed capital formation is
September 2005, up from 2% in 2004. Producer prices expected to accelerate over the forecast period from
rose by 3.4% year-on-year during the first eight 3.6% in 2005 to 5.3% in 2007, as a result of stronger
months, following an annual increase of 3.5% in private investment following further improvements in
2004. the overall business environment. Real exports will
continue to grow by around 6-7% annually, in
In the fist half of 2005, merchandise exports increased particular backed by strong services exports. A rising
by 8% year on year, and services exports declined by stock of FDI will gradually improve the prospects for
2.7%. Merchandise import growth picked up merchandise exports. Real imports are expected to
somewhat to 6.7% from around 5% in 2004. On a four expand more slowly than exports, but they will
quarter rolling basis, the trade deficit as a share of accelerate in line with growing GDP. Accordingly,
net exports will contribute by almost around half a
Graph 5.1: Croatia - Contributions to growth percentage point to GDP growth each year over the
% forecast period.
Forecast
Annual average consumer price inflation is expected
GDP
5 to rise to 3% in 2005, largely as a result of higher oil
and food prices. Further adjustments of administrative
3 prices and indirect taxes will slightly accelerate
inflation further in 2006 and 2007 to 3.1% and 3.2%,
1
respectively.
In line with accelerating GDP growth, employment
-1 growth is forecast to accelerate slightly from 0.9% in
2005 to 1.2% in 2007. This will lead to a gradual
-3 reduction of the unemployment rate from 13.3% in
03 04 05 06 07 2005 to 12.1% in 2007. Real wage growth is expected
Final domestic demand Stocks Net exports to accelerate in 2006 and 2007, slightly above average

106
 Chapter 5
Candidate Countries, Croatia

productivity gains, leading to an increase in real unit External balances

labour costs.
The trade deficit is expected to come down only
Public finances slightly in 2006 and 2007, as import growth remains
strong, reflecting a rather high import content of
The general government deficit is expected to be exports and a stronger private consumption growth in
reduced from 4.9% of GDP in 2004 to 4.5% in 2005. 2007. As a result, the deficit as a percentage of GDP
The forecast assumes a further reduction of the deficit will only slightly decline from 24.3% in 2005 to
to 3.7% in 2006 and 3.4% in 2007. The share of 23.8% in 2006. The current account deficit is forecast
current spending in GDP will be reduced, also as a to increase to 6.2% of GDP in 2005 (from 5.3% in
result of some policy measures taken in 2005 (change 2004), due to a deterioration of the terms of trade, a
in pension indexation, reduction of subsidies) and higher income balance deficit and statistical revisions.
public investment growth will further slow down to The deficit will however be gradually reduced in 2006
more sustainable levels. Revenues as a share of GDP, and 2007 to 5.8% and 5.2%, respectively, primarily
in particular indirect taxes, will only slightly decline. on the back of a higher surplus of the services
The fiscal impact of the agreed repayment of old balance.
pensioners obligations starting in mid-2006 remains
unclear and constitutes a potential downside risk to
fiscal performance over the forecast period. The
general government debt-to-GDP ratio is expected to
be reduced to 43.1% by 2007.

Table 5.1
Main features of country forecast - CROATIA
2004 Annual percentage change
mio HRK Curr. prices % GDP 95-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 207082.0 100.0 - 5.2 4.3 3.8 3.6 4.0 4.4
Private consumption 120312.0 58.1 - 7.5 4.1 3.9 3.7 3.7 3.9
Public consumption 41188.0 19.9 - -1.8 -0.3 -0.3 0.7 0.5 0.5
Gross fixed capital formation 57141.0 27.6 - 12.0 16.8 4.4 3.6 4.2 5.3
of which : equipment - - - - - - - - -
Change in stocks as % of GDP 5384.0 2.6 - 3.8 3.0 2.7 2.4 2.3 2.2
Exports (goods and services) 98330.0 47.5 - 1.3 10.1 5.4 6.0 6.6 6.9
Final demand 322355.0 155.7 - 6.5 6.7 3.7 3.8 4.2 4.7
Imports (goods and services) 120065.0 58.0 - 8.8 10.9 3.5 4.3 4.6 5.1
GNI at constant prices (GDP deflator) 202377.0 97.7 - - - - 3.6 3.9 4.3
Contribution to GDP growth : Domestic demand - 6.8 6.5 3.5 3.4 3.5 3.9
Stockbuilding - 2.7 -0.7 -0.2 -0.2 -0.1 0.0
Foreign balance - -4.2 -1.5 0.5 0.4 0.5 0.4
Employment - 0.8 2.5 1.6 0.9 1.0 1.2
Unemployment (a) - 14.7 14.1 13.8 13.3 12.9 12.1
Compensation of employees/head - 6 4.8 6.4 5.0 6.6 7.1
Unit labour costs - 5.3 0.6 4.1 2.3 3.5 3.9
Real unit labour costs - 3.4 -2.6 0.8 -0.2 0.6 0.5
Savings rate of households (b) - - - - - - -
GDP deflator - 2.9 3.2 3.3 2.5 2.9 3.3
Private consumption deflator - 1.9 1.4 2.2 3.0 3.1 3.2
Index of consumer prices (d) - 1.7 1.8 2.1 3.0 3.1 3.2
Trade balance (c) - -24.6 -27.3 -24.3 -24.3 -24.1 -23.8
Current account balance (c) - -8.6 -7.4 -5.3 -6.2 -5.8 -5.2
Net lending(+) or borrowing(-) vis-à-vis ROW (c) - - - - - - -
General government balance © - -5 -6.3 -4.9 -4.5 -3.7 -3.4
General government gross debt (c) - 40.5 42.2 44.8 45.2 44.4 43.1
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP. (d) national indicator.

107
2. Turkey
Economy growing close to potential

Recent economic developments Prospects in 2005 to 2007

In 2004 and 2005, economic stabilisation has The overall picture for the forecasting period looks
continued along with a better balancing of the sources favourable. Turkey should be able to maintain strong
of growth. During the first half year of 2005, strong export growth -in particular in tourism- while the tight
investment led to an increase in output by 4½%. fiscal policy stance will support the current
Favourable base-year effects and leading indicators, disinflation process, in spite of pressures arising from
such as industrial production and capacity utilisation, high oil prices and rigidities in services prices.
point to continued strong growth in the second half,
which most likely will bring output growth in 2005 to The continued decline in inflationary pressures will
about 5%. Inflationary pressures continued to decline, improve predictability and allow for a fall in interest
reflecting the strength of the Turkish currency and the rates and improve the investment climate. Overall,
strict fiscal policy of the Turkish authorities. As a economic growth is expected to increase by about 5%
result, consumer price inflation fell to 7½% in throughout the forecasting period. Output growth is
October 2005, below the year-end target of 8%. expected to be increasingly balanced by domestic
demand components, with private investment
After almost three years of strong growth with almost outpacing overall growth. Declining inflation will
no job creation, employment started to rise since mid- support disposable income and allow consumers to
2004 by roughly 2% year-on-year. The labour force gradually increase consumption from 4¾% in 2005 to
participation rate went slightly up to about 50%. 5½% in 2007. Fixed investment will continue to
These trends together led to a small fall in the benefit from reduced macroeconomic and political
unemployment rate to below 10%. Public finances uncertainty and declining real interest rates. On the
remained largely on track, achieving a primary other hand, the build-up of stocks appears to have
surplus of 6½% of GDP. This substantial surplus and come to an end in 2005. The strong investment and
strong GDP growth led to a sharp reduction in the consumption will lead to continued high growth of
debt ratio, from 87% of GDP in 2003 to 80% in 2004. imports, in particular of consumer durables and
The current account deficit widened considerably capital goods. Exports should benefit from
reflecting accelerating domestic demand and the diversification and quality improvements resulting
strength of the currency, from just over 3% of GDP in from earlier high investments. However, the relative
2003 to about 5 % of GDP in 2004. strength of the Turkish currency might make it more
difficult for exporters to benefit from new trade
opportunities. Parliamentary and Presidential
elections are due in 2007. This might have an
important impact on public spending. Any possible
impact stemming from policy changes in the context
Graph 5.2: Turkey - GDP growth of political events has not been incorporated in the
current forecast.
%

12 Forecast The trend in declining inflationary pressures is likely

to continue. Fiscal discipline, improving credibility
8 of the Central Bank’s disinflation targets and the
recent strength of the currency are important elements
4 in this respect. Annual average consumer price
inflation is expected to stay below 8% by the end of
0 2005. However, high oil and services prices might
slowdown the disinflation process in 2006-2007.
-4
Quarterly y-o-y In line with the strong growth performance,
-8 Annual employment is forecast to increase by about 2% per
Annual - forecast year. This will lead to a slight reduction of the
-12 unemployment rate from 10% in 2005 to 9¾% in
00 01 02 03 04 05 06 07 2007.

108
 Chapter 5
Candidate Countries, Turkey

Public finances External balances

The public sector imbalances are likely to decline Growth of imports remains strong, partially reflecting
markedly during 2005-2007, benefiting from the a rather high import content of exports. The current
sustained recovery, declining interest rates driven by account deficit is forecast to increase to 6¼% of GDP
improved market confidence and a prudent fiscal in 2006, due to a deterioration of the terms of trade
policy stance. The ongoing public finance reforms and a higher deficit of the income balance. Primarily
will help to widen the tax base and to increase the due to a higher surplus of the services balance, the
efficiency of tax collection. Non-interest deficit is forecast to narrow to 5¾ in 2007.
expenditures are seen to remain largely constant as a
percentage of GDP. The general government deficit
is expected to fall from 3.9% of GDP in 2004 to 2.9%
by 2007. General government debt is forecast to
decline from 80% at the end of 2004 to 62% at the
end of 2007.

Table 5.2
Main features of country forecast - TURKEY
2004 Annual percentage change
bn TRY Curr. prices % GDP 95-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 429.7 100.0 2.7 7.9 5.8 8.9 5.0 5.2 5.1
Private consumption 287.2 66.8 2.1 1.9 7.2 10.6 4.8 5.0 5.5
Public consumption 56.8 13.2 4.5 5.4 -2.4 0.5 4.4 5.0 3.5
Gross fixed capital formation 76.7 17.9 -1.1 -1.1 10.0 32.4 13.3 10.6 8.3
of which : equipment - - -0.3 9.1 43.7 61.7 12.2 10.0 8.0
Change in stocks as % of GDP 34.0 7.9 0.3 4.3 6.4 6.8 7.4 6.7 6.1
Exports (goods and services) 124.3 28.9 11.1 11.1 16.0 12.5 7.0 7.2 7.6
Final demand 579.0 134.7 3.7 9.5 10.4 12.8 6.3 6.2 6.1
Imports (goods and services) 149.3 34.7 8.6 15.8 27.1 24.7 9.0 8.0 8.0
GNI at constant prices (GDP deflator) 431.4 100.4 2.4 8.1 5.9 9.5 4.8 5.3 5.3
Contribution to GDP growth : Domestic demand 2.3 1.9 6.0 12.3 6.6 6.3 6.0
Stockbuilding 0.2 5.7 2.4 0.9 -0.4 -0.3 -0.3
Foreign balance 0.3 -0.9 -2.8 -4.2 -1.2 -0.7 -0.6
Employment 0.8 -0.8 -1.0 2.6 2.0 2.1 2.0
Unemployment (a) 7.2 10.3 10.5 10.3 10.0 9.8 9.8
Compensation of employees/head 72.1 37.9 27.9 12.1 13.3 11.6 10.3
Unit labour costs 69.0 26.7 19.7 5.6 10.0 8.2 7.1
Real unit labour costs 0.4 -12.1 -2.3 -3.9 2.3 1.4 0.7
Savings rate of households (b) - - - - - - -
GDP deflator 68.4 44.1 22.5 9.9 7.6 6.8 6.4
Private consumption deflator 70.1 40.8 21.2 7.4 8.4 7.2 6.4
Index of consumer prices (e) 73.4 45.0 21.6 8.6 8.1 7.4 6.3
Trade balance (c) -9.7 -7.8 -8.1 -9.0 -8.3 -8.6 -8.1
Current account balance (c) -3.0 -2.4 -4.1 -6.2 -6.0 -6.2 -5.8
Net lending(+) or borrowing(-) vis-à-vis ROW (c) - - - - - - -
General government balance (c)(d) - -12.3 -9.7 -3.9 -3.8 -3.6 -2.9
General government gross debt (c) - 94.3 87.2 80.8 71.3 66.6 62.8
(a) as % of civilian labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(d) Including proceeds relative to UMTS licences (see for more details note 10 on concepts and sources). (e) national indicator.

109
Chapter 6
Other non-EU Countries
1. United States of America
Expansion expected to slow down

Growth and imbalances government declined from 4.7% of GDP last year to
3.5 in the first half of 2005 following a temporary
The US economy continued to expand at a rate above surge in tax revenues based on last year’s corporate
long-term potential into the third quarter of 2005. and personal income. Personal saving as a share of
Growth this year has again been led by buoyant disposable personal income declined from 1.8% last
consumer spending, supported by robust gains in year to 0.3% in the first half of 2005. The advance
housing and equipment investment. The advance GDP estimate for the third quarter shows even a negative
estimate for the third quarter showed an annualised personal saving rate (-1.1%). Double-digit house price
growth rate of 3.8%. Towards the end of the quarter, inflation has contributed to the falling saving rate via
Hurricanes Katrina and Rita struck the US Gulf Coast mortgage equity withdrawals. The housing market is
and caused widespread devastation and disruption to increasingly displaying features of an asset price
economic activity. The disaster, which was bubble.
accompanied by a surge in energy prices, is likely to
curb growth for some months. Higher energy prices and interest rates to take
their toll
The labour market has improved further in 2005, with
the unemployment rate drifting down to around 5%. Looking forward, it can be expected that consumer
However, the absence of any wage acceleration seems spending will be curbed by the combined effects of
to indicate that there is not yet any real labour market higher energy prices and rising interest rates. The
tightness. At the same time, the underlying growth of large increases in energy prices in the third quarter
productivity has remained robust. Reflecting the sharp are, by and large, assumed to persist over the forecast
rise in energy prices, headline inflation surged to period and will reduce real disposable incomes
4.7% year-on-year in September. Core inflation, noticeably. At the same time, the Federal Reserve is
however, has so far been relatively benign at around poised to continue to remove monetary stimulus
2% year-on-year. gradually, an approach which has so far raised the
federal funds target rate from 1% in June 2004 to 4%
Serious macroeconomic imbalances provide a in November 2005. Long-term rates have also
worrying background to the expansion. The current increased recently and may rise further in view of
account deficit has increased from 5.6% of GDP last growing concerns about inflationary pressures and a
year to 6.2% in the first half of 2005 in national worsening fiscal outlook. As a corollary to rising
account terms, even though exports are now growing interest rates, the housing market is expected to cool
faster in real terms than imports. Rapidly declining down which should lead to higher household saving.
net investment income is contributing to the widening
external deficit. The fiscal deficit of general Business investment is likely to soften in response to
downward pressure on profit margins from somewhat
higher unit labour costs. Also, the fact that industrial
Graph 6.1: United States - Fiscal and current account
deficits set to increase capacity utilisation is still below its long-term average
3 % of GDP
suggests that there is no need for particularly high
2 capital spending. Overall capital formation should
Forecast
1 also be held back by a fall in residential investment
0 activity, which is particularly sensitive to higher
-1 interest rates. External trade should have a broadly
-2
neutral effect on growth over the forecast period, as
-3
the gains in international competitiveness from the
-4
dollar depreciation in 2002-04 have been somewhat
-5
reduced by the dollar’s appreciation in real effective
-6
terms since the spring.
-7 The disruptions caused by the hurricanes are likely to
90 92 94 96 98 00 02 04 06
suppress GDP growth in the fourth quarter of this
Fiscal balance of general government year. Subsequently, however, the additional economic
Current account balance (NIPA) activity needed to clean up and rebuild the Gulf Coast

112
 Chapter 6
Other non-EU Countries, United States of America

area should boost national output. The main weight of Headline inflation numbers should benefit from a
the rebuilding effect is expected to fall in the first half stabilisation of energy prices, although core inflation
of 2006, when it may offset the growth-reducing can be expected to be under upward pressure for a
effects from higher energy prices and interest rates. while. The general government deficit is forecast to
The federal government is committed to providing rise to the range of 4% - 5% of GDP again, driven by
substantial funding for the reconstruction effort. fiscal spending for hurricane relief. The current
account deficit will continue to rise, although at a
Prospects for 2006 and 2007 somewhat slower pace.
The forecast sees output growth at slightly above its There are risks to the GDP forecast on both sides. On
long-term potential in the first half of 2006. As the the upside, there is the possibility that continued
post-hurricane rebuilding effect wanes from the strong gains in real estate values will keep household
middle of next year, GDP growth is projected to fall spending growth at recent levels. The downside risks
below potential, particularly in 2007. This profile will may be somewhat less likely, but their effect more
result in annual growth rates of 3.2% in 2006 and severe, should they materialise. A sharp rise in long-
2.7% in 2007. The anticipated slowdown in consumer term rates, possibly in connection with a loss of
spending should push personal saving back up to confidence in the dollar, could result in large negative
about 2% of disposable personal income by 2007. The wealth effects followed by a recession.
slowing economy would result in a slight rise in the
unemployment rate by 2007 when employment
growth falls below the growth in labour supply.

Table 6.1
Main features of country forecast - UNITED STATES
2004 Annual percentage change
bn USD Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 11734.3 100.0 3.1 1.6 2.7 4.2 3.5 3.2 2.7
Private consumption 8214.3 70.0 3.5 2.7 2.9 3.9 3.5 2.0 2.1
Public consumption 1843.4 15.7 2.0 4.7 3.3 2.5 1.9 4.0 2.4
Gross fixed capital formation 2245.1 19.1 4.1 -3.9 3.2 8.3 7.1 5.5 3.9
of which : equipment 1040.8 8.9 6.5 -5.5 3.1 11.4 10.0 7.3 6.2
Change in stocks as % of GDP 55.4 0.5 0.4 0.1 0.2 0.5 0.1 0.1 0.1
Exports (goods and services) 1173.9 10.0 5.7 -2.3 1.8 8.4 7.0 8.9 8.0
Final demand 13532.1 115.3 3.5 1.8 2.9 5.0 3.9 3.5 3.1
Imports (goods and services) 1797.8 15.3 7.6 3.4 4.6 10.7 6.0 5.7 5.1
GNI at constant prices (GDP deflator) 11788.1 100.5 3.1 1.5 3.1 4.1 3.3 2.8 2.4
Contribution to GDP growth : Domestic demand 3.4 1.9 3.1 4.6 4.1 3.1 2.6
Stockbuilding 0.0 0.4 0.0 0.3 -0.4 0.0 0.0
Foreign balance -0.3 -0.7 -0.5 -0.7 -0.2 0.0 0.1
Employment (*) 1.6 -0.3 0.9 1.1 1.7 1.2 0.6
Unemployment (a) 6.3 5.8 6.0 5.5 5.1 5.0 5.3
Compensation of employees/head 4.5 3.6 4.2 4.8 4.9 4.4 4.4
Unit labour costs 2.9 1.6 2.3 1.6 3.1 2.4 2.3
Real unit labour costs -0.2 -0.1 0.3 -1.0 0.3 -0.5 -0.1
Savings rate of households (b) - - 2.2 1.8 -0.2 1.1 2.1
GDP deflator 3.1 1.8 2.0 2.6 2.7 2.9 2.4
Private consumption deflator 3.3 1.4 1.9 2.6 2.9 2.8 2.2
General index of consumer prices - 1.6 2.3 2.7 3.3 2.9 2.2
Trade balance (c) -2.5 -4.7 -5.1 -5.8 -6.3 -6.3 -6.2
Current account balance (c) -1.7 -4.4 -4.6 -5.6 -6.2 -6.3 -6.4
Net lending(+) or borrowing(-) vis-à-vis ROW (c) -1.8 -4.4 -4.7 -5.6 -6.2 -6.3 -6.4
General government balance (c) -3.4 -3.8 -5.0 -4.7 -3.9 -4.7 -4.9
General government gross debt (c) 64.5 60.7 63.2 63.8 - - -
(a) as % of total labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
(*) Employment data from the BLS household survey.

113
2. Japan
On track for a continued recovery, albeit at a moderate pace

Economic activity improved in 2005 brighter and confidence continues to remain

favourable on the whole. On the external side,
The Japanese economy is emerging from the technical exports, particularly to the rest of Asia, seem to be
recession that took place in mid-2004. GDP grew by picking up again. At the same time, imports’ growth
3.3% at an annualised rate in the second quarter of should stabilise.
2005 after growing by 5.8% in the first quarter of the
year. While there was a noticeable slowdown in Given the negative growth overhang into the year,
exports, the recovery was mainly fuelled by a rebound annual growth is forecast to marginally slow down
in domestic demand. from 2.7% in 2004 to 2.5% in 2005, in spite of these
strong developments in the first half of 2005.
Private consumption improved considerably in the
first half of 2005. Household income has been rising Prospects for 2006 and 2007
moderately as a result of an improving employment
situation and the interruption of the decline in real The current economic recovery appears sustainable
wages. Non-residential investment was also a during the forecast horizon as GDP growth is
significant contributor to GDP growth in the first half becoming more balanced. The global economic
of the year. Corporate profitability is high and environment is expected to remain supportive to
business companies have significantly improved their growth, while domestic demand should maintain its
balance sheets. On the external side, exports current momentum. In particular, strong projected
registered a slowdown over the first half of the year profit growth, continued reduction in corporate
compared to 2004, mainly due to the loss of indebtedness and high capacity utilisation suggest that
momentum of exports to the rest of Asia. Overall, the capital expenditures should continue to expand.
contribution of net exports to GDP growth in the first Increasing wages, asset prices and confidence should
half of the year was neutral. support consumption. Moreover, the recent election
results should further boost structural reforms and
Recent indicators suggest that economic activity might stimulate household and business confidence.
should continue to expand steadily in the coming
quarters. On the domestic front, the gradual On the external side, despite an acceleration of
improvement of the situation in the labour market as imports associated with stronger domestic demand,
well as positive confidence environment should net exports are not projected to be an important drag
enable household consumption to remain on its on GDP growth, as export growth should remain
upward trend. On the corporate front, industrial resilient.
production seems to have turned up in August, and Overall, economic growth is expected to moderate in
orders are rising. Business investment is forecast to pace over the coming years but should continue to be
further increase as the business outlook becomes close to potential. GDP growth is forecast to slow
down to 2.2% in 2006 and 1.8% in 2007.
Graph 6.2: Japan - Real GDP growth rates
An improving situation in the labour market
5 % ch.
The situation in the labour market has been improving
4
markedly since the beginning of 2005, with the
3 number of full-time employees increasing for the first
2 time in more than five years. Although the growth of
1
part-time employment is gradually slowing down – in
line with the progress made in corporate restructuring
0
– total employment is now on an upward trend. The
-1 unemployment rate stood at a low of 4.2% in
-2 September 2005. In the light of these developments,
real wages have started to rise, albeit with some
-3 q-o-q y-o-y
fluctuations.
-4
95 96 97 98 99 00 01 02 03 04 05

114
 Chapter 6
Other non-EU Countries, Japan

Core deflation eases gradually is likely to be maintained for the major part of next
year, though on a reduced scale. A gradual and
Deflationary pressures continue to ease, although cautious monetary tightening could be expected in the
slowly. In September, the headline CPI decreased by course of 2007, however.
0.3% year-on-year, while the core index fell by 0.1%.
The end of asset price deflation also seems on track As for fiscal policy, the government has taken a very
with signs of land prices increasing in some regions. cautious attitude towards fiscal consolidation for a
long time, fearing that any sizeable package might
Bank lending growth was positive in August and bring the economy back into recession. So far,
September 2005 (+0.4%) for the first time since 1998, cautious measures of expenditure cuts have been
indicating that the functioning of the monetary policy preferred to raising revenues. The government has
transmission mechanism might be improving. Core stated the objective of reducing the primary balance
inflation is projected to turn positive around the by around 0.5 of a percentage point annually. So far,
beginning of 2006. However, it should remain however, there is no medium-term fiscal
relatively low in 2006, despite the narrowing of the consolidation plan to achieve this.
output gap and high oil prices.
Economic policy challenges
Given the core inflation profile, an official interest
rate hike in 2006 might not yet be warranted. The
current monetary policy stance of quantitative easing

Table 6.2
Main features of country forecast - JAPAN
2004 Annual percentage change
bn YEN Curr. prices % GDP 81-01 2002 2003 2004 2005 2006 2007
GDP at constant prices 505159.8 100.0 2.5 -0.3 1.4 2.7 2.5 2.2 1.8
Private consumption 285533.1 56.5 2.5 0.5 0.2 1.5 1.9 2.0 1.6
Public consumption 89175.6 17.7 3.4 2.6 1.2 2.7 1.8 1.1 1.0
Gross fixed capital formation 120340.3 23.8 2.3 -5.7 0.9 1.6 4.2 5.0 3.8
of which : equipment - - 4.5 -9.5 9.2 - - - -
Change in stocks as % of GDP 484.8 0.1 0.3 -0.2 0.0 0.2 0.2 0.0 0.1
Exports (goods and services) 66286.3 13.1 4.0 7.3 9.1 14.4 5.7 5.5 6.2
Final demand 561820.1 111.2 2.7 -0.2 1.6 3.3 2.9 2.8 2.6
Imports (goods and services) 56660.3 11.2 4.8 1.3 3.8 8.9 6.4 8.2 9.4
GNI at constant prices (GDP deflator) 514779.7 101.9 2.6 -0.3 1.4 2.9 2.6 2.1 1.8
Contribution to GDP growth : Domestic demand 2.5 -0.7 0.6 1.7 2.4 2.5 2.0
Stockbuilding 0.0 -0.2 0.2 0.2 0.1 -0.2 0.0
Foreign balance 0.0 0.6 0.6 0.8 0.1 -0.1 -0.2
Employment 0.6 -1.4 -0.3 0.2 0.3 0.2 0.0
Unemployment (a) 3.0 5.4 5.3 4.7 4.5 4.2 4.2
Compensation of employees/head 2.3 -1.5 -0.6 -1.1 -0.2 0.1 0.3
Unit labour costs 0.4 -2.6 -2.2 -3.5 -2.4 -1.8 -1.5
Real unit labour costs -0.6 -1.4 -0.8 -2.3 -1.4 -1.6 -2.4
Savings rate of households (b) - - 13.9 12.9 11.9 10.8 9.2
GDP deflator 1.0 -1.3 -1.4 -1.2 -1.0 -0.3 0.9
Private consumption deflator 1.2 -1.2 -0.7 -0.5 -0.5 0.0 1.2
General index of consumer prices - -0.9 -0.3 0.0 -0.2 0.3 2.0
Trade balance (c) 2.8 2.4 2.5 2.8 2.6 2.6 2.9
Current account balance (c) 2.4 2.8 3.2 3.7 3.5 3.2 3.3
Net lending(+) or borrowing(-) vis-à-vis ROW (c) 2.3 2.8 3.1 3.6 3.4 3.1 3.2
General government balance (c) -2.5 -7.9 -7.7 -7.0 -6.5 -6.1 -5.8
General government gross debt (c) 85.1 149.4 154.6 157.6 161.9 165.2 166.9
(a) as % of total labour force. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.

115
 ANNEX
Statistical Annex
 ANNEX
Contents

Output: GDP and its components

1. Gross Domestic Product 121
2. Profiles (qoq) of quarterly GDP 121
3. Profiles (yoy) of quarterly GDP 121
4. GDP per capita 122
5. Final domestic demand 123
6. Final demand 123
7. Private consumption expenditure 124
8. Government consumption expenditure 124
9. Total investment 125
10. Investment in construction 125
11. Investment in equipment 126
12. Public investment 126
13. Potential output gap 127
14. Deflator of GDP 127

Prices
15. Deflator of private consumption 128
16. Consumer prices index 128
17. Consumer prices quarterly profiles 129
18. Deflator of exports of goods 129
19. Deflator of imports of goods 130
20. Terms of trade of goods 130

Wages, population and labour market

21. Compensation of employees per head 131
22. Real compensation of employees per head 131
23. Labour productivity 132
24. Unit labour costs, whole economy 132
25. Real unit labour costs 133
26. Total population 133
27. Total employment 134
28. Number of unemployed 134

Interest and exchange rates

29. Nominal bilateral exchange rates 135
30. Nominal effective exchange rates 135
31. Relative unit labour costs 136
32. Real effective exchange rates 136
33. Short term interest rates 137
34. Long term interest rates 137

119
ANNEX

General Government
35. Total expenditure 138
36. Total revenue 138
37. Net lending (+) or net borrowing (-) 139
38. Interest expenditure 139
39. Primary balance 140
40. Cyclically adjusted net lending (+) or net borrowing (-) 140
41. Cyclically adjusted primary balance 141
42. Gross debt 141

Saving
43. Gross national saving 142
44. Gross saving of the private sector 142
45. Gross saving of general government 143

Trade and international payments

46. Exports of goods 143
47. Imports of goods 144
48. Trade balance (% of GDP) 144
49. Current balance (% of GDP) 145
50. Net lending (+) or net borrowing (-) of the nation 145
51. Trade balance (billion Ecu/euro) 146
52. Current balance (billion Ecu/Euro) 146
53. Export markets 147
54. Export performance 147

World economy
55. World GDP 148
56. World exports 149
57. Export shares in EU trade 149
58. World imports 150
59. Import shares in EU trade 150
60. World trade balances (billion USD) 151
61. World current balances (billion USD) 151
62. Primary commodity prices 151

Note on concepts and sources 152

120
 ANNEX
STATISTICAL ANNEX : AUTUMN 2005 ECONOMIC FORECASTS

TABLE 1 : Gross domestic product, volume (percentage change on preceding year, 1961-2007) 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 3.4 1.6 2.7 1.0 1.5 0.9 2.6 2.2 1.4 2.3 2.1 : 2.0
Germany 3.2 2.2 2.0 1.2 0.1 -0.2 1.6 0.8 0.8 1.6 1.2 : 1.6
Greece 4.5 1.2 3.4 4.6 3.8 4.6 4.7 2.9 3.5 3.1 3.4 : 3.4
Spain 4.6 1.5 4.1 3.5 2.7 3.0 3.1 2.7 3.4 2.7 3.2 : 3.0
France 3.8 1.3 2.9 2.1 1.2 0.8 2.3 2.0 1.5 2.2 1.8 : 2.3
Ireland 4.2 4.7 9.7 6.2 6.1 4.4 4.5 4.9 4.4 5.1 4.8 : 5.0
Italy 3.9 1.3 1.9 1.8 0.4 0.3 1.2 1.2 0.2 1.7 1.5 : 1.4
Luxembourg 3.7 4.0 7.1 1.5 2.5 2.9 4.5 3.8 4.2 4.0 4.4 : 4.5
Netherlands 3.4 2.1 3.7 1.4 0.1 -0.1 1.7 1.0 0.5 2.0 2.0 : 2.4
Austria 3.5 2.2 2.9 0.8 1.0 1.4 2.4 2.1 1.7 2.1 1.9 : 2.2
Portugal 4.8 1.7 4.0 2.0 0.5 -1.2 1.2 1.1 0.4 1.7 0.8 : 1.2
Finland 3.9 -0.9 4.7 1.0 2.2 2.4 3.6 3.3 1.9 2.9 3.5 : 3.1
Euro area 3.6 1.6 2.7 1.9 0.9 0.7 2.1 1.6 1.3 2.1 1.9 : 2.1
Czech Republic : -1.0 1.5 2.6 1.5 3.2 4.4 4.0 4.8 4.2 4.4 : 4.3
Denmark 2.7 2.3 2.9 0.7 0.5 0.6 2.1 2.3 2.7 2.1 2.3 : 2.1
Estonia : : 5.6 6.5 7.2 6.7 7.8 6.0 8.4 6.2 7.2 : 7.4
Cyprus : 5.3 3.8 4.1 2.1 1.9 3.8 3.9 3.9 4.2 4.0 : 4.2
Latvia : -11.8 5.4 8.0 6.4 7.2 8.3 7.2 9.1 6.9 7.7 : 7.1
Lithuania : -10.3 4.2 7.2 6.8 10.5 7.0 6.4 7.0 5.9 6.2 : 5.8
Hungary : : 4.0 3.8 3.5 2.9 4.2 3.9 3.7 3.8 3.9 : 3.9
Malta : : 4.5 0.2 0.8 -1.9 0.4 1.7 0.8 1.9 0.7 : 1.1
Poland : 2.2 5.1 1.0 1.4 3.8 5.3 4.4 3.4 4.5 4.3 : 4.5
Slovenia : -0.6 4.4 2.7 3.5 2.7 4.2 3.7 3.8 4.0 4.0 : 4.2
Slovakia : : 3.7 3.8 4.6 4.5 5.5 4.9 5.1 5.2 5.5 : 6.3
Sweden 2.9 0.8 3.2 1.0 2.0 1.5 3.6 3.0 2.5 2.8 3.0 : 2.8
United Kingdom 2.5 1.7 3.2 2.2 2.0 2.5 3.2 2.8 1.6 2.8 2.3 : 2.8
EU-25 : : 2.9 1.9 1.2 1.2 2.4 2.0 1.5 2.3 2.1 : 2.4
EU-15 3.4 1.6 2.8 1.9 1.1 1.1 2.3 1.9 1.4 2.2 2.0 : 2.2
USA 3.5 2.5 4.1 0.8 1.6 2.7 4.2 3.6 3.5 3.0 3.2 : 2.7
Japan 6.1 1.5 1.3 0.2 -0.3 1.4 2.7 1.1 2.5 1.7 2.2 : 1.8

TABLE 2 : Profiles (qoq) of quarterly GDP, volume (percentage change from previous quarter, 2005-2007)

2005/1 2005/2 2005/3 2005/4 2006/1 2006/2 2006/3 2006/4 2007/1 2007/2 2007/3 2007/4
Belgium 0.0 0.3 0.4 0.4 0.6 0.6 0.6 0.7 0.7 0.7 0.5 0.6
Germany 0.8 0.0 0.5 0.2 0.4 0.4 0.4 0.5 0.5 0.5 0.4 0.5
Greece 2.4 -0.3 : : : : : : : : : :
Spain 0.9 0.9 0.7 0.7 0.8 0.9 0.8 0.7 0.8 0.7 0.6 0.6
France 0.4 0.1 0.5 0.3 0.4 0.5 0.6 0.6 0.6 0.6 0.6 0.7
Ireland 0.3 1.6 1.6 1.7 0.9 0.8 1.0 1.1 1.2 1.3 1.5 1.6
Italy -0.5 0.7 0.5 0.2 0.3 0.4 0.4 0.4 0.3 0.3 0.3 0.3
Luxembourg : : : : : : : : : : : :
Netherlands -0.8 1.2 0.8 0.5 0.4 0.5 0.5 0.5 0.6 0.6 0.6 0.6
Austria 0.1 0.4 0.1 0.9 0.7 0.2 0.2 0.2 0.8 0.8 0.8 0.8
Portugal 0.3 1.0 -0.7 0.0 0.3 0.5 0.5 0.4 0.2 0.3 0.2 0.3
Finland -0.1 -1.6 2.7 2.0 0.1 0.8 0.8 0.7 0.7 0.8 0.8 0.8
Euro area 0.4 0.3 0.6 0.4 0.5 0.5 0.5 0.5 0.6 0.5 0.5 0.6
Czech Republic 1.3 1.3 0.9 1.0 0.9 1.3 1.1 1.2 1.0 1.0 0.9 1.0
Denmark 0.4 1.6 0.4 0.6 0.3 0.6 0.5 0.5 0.4 0.6 0.7 0.7
Estonia 2.2 3.9 : : : : : : : : : :
Cyprus 1.3 0.7 0.7 2.1 0.6 1.0 1.0 1.0 1.3 1.0 1.0 1.0
Latvia 2.5 3.2 : : : : : : : : : :
Lithuania 0.7 2.8 2.3 : : : : : : : : :
Hungary 0.9 1.2 : : : : : : : : : :
Malta -1.2 2.3 : : : : : : : : : :
Poland 1.4 -0.2 : : : : : : : : : :
Slovenia 1.2 2.6 : : : : : : : : : :
Slovakia 1.2 1.3 1.0 1.4 1.6 1.3 1.1 1.7 2.1 1.3 1.1 1.2
Sweden 0.5 0.6 0.7 0.7 0.8 0.9 0.8 0.7 0.7 0.7 0.8 0.7
United Kingdom 0.3 0.5 0.4 0.5 0.6 0.7 0.6 0.7 0.7 0.7 0.7 0.8
EU-25 0.4 0.4 0.6 0.4 0.5 0.6 0.6 0.6 0.6 0.6 0.6 0.6
EU-15 0.4 0.3 0.5 0.4 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.6
USA 0.9 0.8 0.9 0.7 0.9 0.9 0.8 0.7 0.7 0.6 0.6 0.6
Japan 1.4 1.1 0.6 0.8 0.5 0.4 0.4 0.4 0.5 0.5 0.5 0.5

121
ANNEX

TABLE 3 : Profiles (yoy) of quarterly GDP, volume (percentage change from corresponding quarter in previous year, 2005-2007) 07.11.2005

2005/1 2005/2 2005/3 2005/4 2006/1 2006/2 2006/3 2006/4 2007/1 2007/2 2007/3 2007/4
Belgium 1.8 1.4 1.0 1.0 1.6 1.9 2.2 2.5 2.6 2.7 2.5 2.4
Germany 0.8 0.6 1.2 1.5 1.0 1.4 1.3 1.5 1.7 1.8 1.8 1.9
Greece 3.5 3.7 3.9 4.6 3.5 3.5 3.4 3.5 3.5 3.4 3.6 3.6
Spain 3.3 3.4 3.4 3.3 3.1 3.2 3.3 3.3 3.3 3.0 2.9 2.8
France 1.9 1.3 1.6 1.3 1.3 1.8 1.9 2.1 2.3 2.3 2.3 2.4
Ireland 2.2 4.0 6.0 5.2 5.9 5.0 4.4 3.9 4.2 4.7 5.2 5.7
Italy -0.2 0.1 0.3 0.9 1.7 1.4 1.3 1.5 1.5 1.4 1.3 1.2
Luxembourg : : : : : : : : : : : :
Netherlands 0.1 1.0 1.2 1.7 2.9 2.2 1.9 1.9 2.2 2.3 2.4 2.5
Austria 2.4 1.8 1.0 1.5 2.0 1.8 1.9 1.3 1.4 1.9 2.6 3.2
Portugal 0.1 0.5 0.4 0.6 0.5 0.1 1.3 1.6 1.6 1.3 1.1 1.0
Finland 2.1 -0.3 1.1 3.0 3.3 5.8 3.7 2.5 3.1 3.1 3.2 3.3
Euro area 1.3 1.1 1.5 1.7 1.8 1.9 1.9 2.0 2.1 2.2 2.2 2.2
Czech Republic 4.7 5.1 4.8 4.7 4.3 4.3 4.4 4.6 4.7 4.4 4.2 3.9
Denmark 2.1 3.0 3.2 3.0 2.9 1.9 2.0 1.9 2.0 2.0 2.1 2.3
Estonia 6.9 10.2 8.9 7.8 6.9 7.7 7.2 7.0 6.8 8.7 7.3 6.7
Cyprus 3.8 3.5 3.4 4.9 4.2 4.5 4.8 3.7 4.3 4.3 4.3 4.3
Latvia 8.6 10.8 8.7 9.3 7.6 7.5 7.6 8.0 6.8 7.0 7.0 7.4
Lithuania 6.0 7.2 8.2 7.4 6.0 6.0 6.3 6.2 5.9 5.7 6.0 5.8
Hungary 3.8 4.0 3.7 3.8 4.3 3.2 3.5 4.8 3.8 4.0 4.2 3.5
Malta -1.3 2.3 : : : : : : : : : :
Poland 4.0 2.7 3.9 4.5 3.7 4.1 4.5 4.9 4.5 4.3 4.6 4.7
Slovenia 2.8 4.7 3.3 3.6 4.5 3.2 4.3 4.0 3.8 4.1 4.6 4.2
Slovakia 5.3 5.2 1.0 1.4 1.6 1.3 1.1 1.7 2.1 1.3 1.1 1.2
Sweden 2.2 2.1 2.1 2.6 2.9 3.2 3.3 3.3 3.1 2.9 2.9 2.9
United Kingdom 1.7 1.5 1.6 1.7 2.0 2.2 2.4 2.6 2.7 2.7 2.8 3.0
EU-25 1.5 1.3 1.7 1.8 1.9 2.1 2.1 2.2 2.3 2.4 2.4 2.4
EU-15 1.4 1.2 1.5 1.7 1.8 2.0 2.0 2.1 2.3 2.3 2.3 2.4
USA 3.6 3.6 3.6 3.3 3.3 3.4 3.2 3.2 3.0 2.7 2.6 2.5
Japan 1.6 2.9 3.5 4.0 3.0 2.3 2.1 1.7 1.7 1.8 1.9 2.0

TABLE 4 : Gross domestic product per capita (percentage change on preceding year, 1961-2007)
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 3.1 1.3 2.4 0.7 1.0 0.5 2.2 1.9 1.1 2.1 1.9 : 1.8
Germany 2.7 1.5 1.9 1.1 -0.1 -0.2 1.7 0.7 0.8 1.5 1.2 : 1.6
Greece 3.9 0.3 2.9 4.3 3.5 4.3 4.5 2.7 3.2 2.9 3.1 : 3.1
Spain 3.7 1.3 3.6 2.3 1.2 2.3 1.4 2.1 1.8 2.0 1.8 : 1.6
France 3.1 0.9 2.5 1.5 0.7 0.3 1.9 1.7 1.0 1.9 1.3 : 1.8
Ireland 3.4 4.1 8.5 4.6 4.3 2.7 2.7 3.4 2.2 3.5 2.9 : 3.3
Italy 3.4 1.2 1.9 1.7 0.1 -0.5 0.2 0.8 -0.4 1.6 1.4 : 1.2
Luxembourg 3.0 2.5 5.6 0.9 1.4 2.1 3.7 2.9 3.4 3.1 3.7 : 3.8
Netherlands 2.5 1.4 3.1 0.7 -0.6 -0.6 1.4 0.8 0.2 1.8 1.8 : 2.2
Austria 3.2 1.5 2.8 0.4 0.5 1.0 1.7 1.7 1.1 1.7 1.4 : 1.8
Portugal 4.4 1.5 3.6 1.3 -0.2 -1.9 0.6 0.6 -0.2 1.2 0.2 : 0.6
Finland 3.5 -1.4 4.4 0.8 1.9 2.2 3.3 3.1 1.7 2.7 3.3 : 2.9
Euro area 3.1 1.3 2.4 1.4 0.4 0.2 1.5 1.3 0.8 1.8 1.5 : 1.7
Czech Republic : -0.9 1.6 3.1 1.7 3.2 4.4 3.8 4.7 4.1 4.3 : 4.2
Denmark 2.3 2.0 2.4 0.3 0.1 0.6 1.6 2.1 2.5 2.0 2.2 : 2.0
Estonia : : 6.6 6.9 7.7 7.1 8.2 6.4 8.7 6.6 7.6 : 7.7
Cyprus : 2.9 2.5 3.0 0.8 0.2 1.4 2.8 2.7 3.0 2.9 : 3.0
Latvia : -10.6 6.4 8.8 7.2 7.8 8.3 7.4 9.3 7.1 8.0 : 7.3
Lithuania : -10.0 4.9 7.8 7.1 11.0 7.5 6.7 7.5 6.1 6.4 : 5.9
Hungary : : 4.3 4.1 3.8 3.2 4.5 4.1 3.9 4.1 4.2 : 4.1
Malta : : 3.9 -0.6 0.0 -2.5 -0.4 1.2 0.3 1.4 0.2 : 0.6
Poland : 1.9 5.3 1.0 1.4 3.9 5.4 4.5 3.5 4.6 4.4 : 4.6
Slovenia : -0.5 4.4 2.5 3.3 2.6 4.1 3.6 3.8 4.0 4.0 : 4.2
Slovakia : : 3.5 3.7 4.8 4.7 5.4 4.9 5.0 5.2 5.4 : 6.2
Sweden 2.5 0.1 3.1 0.8 1.6 1.1 3.2 2.6 2.1 2.3 2.6 : 2.4
United Kingdom 2.2 1.4 2.9 1.8 1.6 2.1 2.8 2.6 1.0 2.6 1.8 : 2.3
EU-25 : : 2.7 1.5 0.7 0.7 1.9 1.8 1.1 2.1 1.8 : 2.0
EU-15 2.9 1.3 2.5 1.4 0.6 0.5 1.7 1.6 0.9 2.0 1.6 : 1.8
USA 2.4 1.2 2.9 -0.3 0.6 1.7 3.2 2.6 2.6 2.0 2.2 : 1.7
Japan 5.2 1.2 1.1 -0.1 -0.4 1.2 2.6 1.1 2.6 1.8 2.2 : 1.9

122
 ANNEX
TABLE 5 : Domestic demand, volume (percentage change on preceding year, 1961-2007) 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 3.3 1.4 2.5 0.5 0.7 1.0 2.6 2.4 1.9 2.4 1.8 : 1.8
Germany 3.1 2.1 1.7 -0.5 -1.9 0.6 0.5 0.6 -0.3 1.6 0.5 : 0.9
Greece 4.7 1.3 4.1 2.7 4.5 5.5 4.7 2.7 2.4 3.0 3.0 : 3.1
Spain 4.9 1.0 4.7 3.6 3.3 3.7 4.8 3.9 5.0 3.6 4.5 : 3.9
France 3.8 0.9 2.9 2.0 1.3 1.5 3.4 2.3 2.4 2.4 2.1 : 2.7
Ireland 3.6 2.6 8.9 4.1 4.3 4.7 4.3 3.5 5.4 4.5 4.3 : 4.7
Italy 3.8 0.3 2.4 1.4 1.2 1.2 1.0 1.3 0.7 2.0 1.6 : 1.5
Luxembourg 3.5 2.3 6.1 4.3 -0.1 2.8 1.8 3.5 1.9 3.5 3.2 : 4.1
Netherlands 3.3 1.5 3.7 1.8 -0.4 -0.3 0.8 0.8 0.2 1.6 1.9 : 3.1
Austria 3.4 2.4 2.3 -0.3 -0.7 2.9 0.9 1.7 0.9 2.0 1.7 : 2.0
Portugal 4.9 2.5 5.0 1.0 -0.2 -2.7 2.2 1.3 0.9 1.8 0.6 : 1.4
Finland 4.1 -2.5 3.7 1.7 0.8 3.1 3.5 2.4 1.9 2.2 2.6 : 2.4
Euro area 3.6 1.2 2.7 1.2 0.4 1.4 2.1 1.8 1.5 2.2 1.9 : 2.1
Czech Republic : -0.2 1.9 3.9 3.4 3.5 2.7 4.6 1.4 4.0 3.4 : 3.9
Denmark 2.5 2.4 2.7 0.0 0.9 1.0 3.4 2.9 3.0 2.1 2.4 : 2.0
Estonia : : 6.0 8.1 9.4 10.9 7.8 3.5 6.5 5.3 3.7 : 5.3
Cyprus : : 3.8 3.3 4.7 2.8 6.0 2.2 2.8 3.6 3.6 : 3.7
Latvia : : 6.2 11.2 6.0 10.8 11.5 6.5 7.7 7.0 7.5 : 7.2
Lithuania : : 5.2 6.3 6.5 12.3 12.9 7.9 7.9 6.1 7.1 : 6.6
Hungary : : 4.5 1.7 5.7 5.8 1.8 3.0 3.1 3.5 4.5 : 4.2
Malta : : 3.6 -6.8 -4.1 7.2 2.2 1.7 1.0 1.3 1.3 : 1.5
Poland : 3.9 6.5 -1.8 0.7 2.1 4.3 4.6 2.5 4.9 4.6 : 4.9
Slovenia : 2.7 4.7 0.8 2.3 4.9 4.8 4.0 2.2 4.2 3.6 : 4.2
Slovakia : : 4.3 7.4 4.6 -2.0 6.5 6.0 6.0 5.7 4.6 : 3.0
Sweden 2.7 -0.5 2.8 -0.2 0.7 1.1 1.4 3.1 2.7 2.9 3.3 : 2.7
United Kingdom 2.6 1.2 4.0 2.8 3.2 2.7 3.7 2.9 1.6 2.8 2.1 : 2.6
EU-25 : : 3.0 1.4 1.0 1.7 2.4 2.1 1.6 2.5 2.1 : 2.4
EU-15 3.4 1.2 2.9 1.4 0.9 1.6 2.4 2.0 1.6 2.3 1.9 : 2.2
USA 3.4 2.5 4.7 0.9 2.2 3.0 4.7 3.8 3.6 2.6 3.0 : 2.5
Japan 6.1 1.5 1.0 0.8 -1.0 0.7 1.9 0.7 2.5 1.3 2.4 : 2.1

TABLE 6 : Final demand, volume (percentage change on preceding year, 1961-2007)

long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 4.2 2.4 3.9 0.7 0.9 1.9 4.3 3.7 2.0 4.0 3.1 : 3.2
Germany 3.6 2.7 3.2 1.2 -0.3 1.1 2.9 2.3 1.6 3.1 2.3 : 2.6
Greece 5.0 1.7 5.3 2.0 2.3 4.7 5.7 3.3 2.9 3.6 3.6 : 3.7
Spain 5.2 2.4 5.7 3.7 3.0 3.7 4.5 4.1 4.2 3.9 3.9 : 3.6
France 4.2 1.6 3.9 2.1 1.3 0.8 3.2 2.9 2.4 3.3 2.5 : 3.1
Ireland 4.9 6.7 13.2 6.9 4.2 2.6 5.6 5.2 3.8 5.6 4.7 : 5.1
Italy 4.3 1.6 2.8 1.5 0.2 0.5 1.5 2.1 0.6 2.6 2.1 : 1.9
Luxembourg 4.2 4.1 10.3 2.8 -0.4 2.2 5.7 5.1 5.6 5.0 6.2 : 6.5
Netherlands 4.1 3.1 5.1 1.7 0.1 0.6 3.9 2.2 1.5 3.4 3.2 : 4.0
Austria 4.2 2.4 3.9 2.2 0.7 2.5 3.6 3.3 1.9 3.6 3.0 : 3.1
Portugal 5.5 2.6 5.3 -1.7 0.3 -0.7 2.9 2.1 0.9 3.1 1.5 : 2.1
Finland 4.1 -0.5 5.7 0.9 2.6 2.1 4.2 3.3 2.8 3.1 3.6 : 3.4
Euro area 4.1 2.2 4.0 1.8 0.8 1.3 3.2 2.8 2.0 3.3 2.7 : 3.0
Czech Republic : 1.9 4.4 6.8 2.9 5.0 9.9 8.2 4.6 7.2 6.2 : 6.5
Denmark 3.1 2.8 4.1 1.0 2.2 0.3 3.3 3.4 3.8 3.1 3.2 : 2.9
Estonia : : 9.1 3.8 7.4 6.9 9.6 8.0 12.0 7.8 9.6 : 9.6
Cyprus : : 4.3 4.3 1.2 1.1 5.8 3.0 3.6 4.3 4.3 : 4.4
Latvia : : 6.7 10.2 5.8 9.2 10.9 7.3 9.2 7.7 8.8 : 8.3
Lithuania : : 5.6 10.0 10.9 10.4 10.0 8.2 8.8 6.7 8.3 : 7.8
Hungary : : 8.9 4.5 4.8 6.6 7.7 7.6 6.6 7.3 7.5 : 7.2
Malta : : 3.5 -4.3 -0.8 2.5 1.3 2.4 -0.6 2.3 1.3 : 2.0
Poland : 4.7 7.4 -0.6 1.7 5.2 6.2 6.2 2.9 6.6 4.7 : 5.2
Slovenia : -1.1 5.5 2.8 3.9 4.1 7.4 5.6 4.8 5.6 5.1 : 5.4
Slovakia : : 6.3 6.9 5.0 8.6 8.4 8.8 6.7 9.1 7.6 : 8.7
Sweden 3.1 1.1 4.5 0.0 0.9 2.4 4.7 4.3 3.1 3.9 4.2 : 3.8
United Kingdom 2.9 2.0 4.6 2.8 2.6 2.4 3.7 3.6 2.2 3.3 2.7 : 3.2
EU-25 : : 4.2 1.9 1.2 1.7 3.6 3.2 2.3 3.5 3.0 : 3.2
EU-15 3.8 2.1 4.1 1.9 1.1 1.5 3.4 3.0 2.1 3.3 2.8 : 3.0
USA 3.6 2.9 5.0 0.3 1.8 2.9 5.0 4.1 3.9 3.2 3.5 : 3.1
Japan 6.3 1.7 1.4 0.1 -0.2 1.6 3.3 1.6 2.9 2.1 2.8 : 2.6

123
ANNEX

TABLE 7 : Private consumption expenditure, volume (percentage change on preceding year, 1961-2007) 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 3.2 1.7 2.3 1.1 0.8 0.9 1.5 2.0 1.3 2.1 1.5 : 1.8
Germany 3.6 2.4 1.8 1.9 -0.5 0.1 0.6 0.7 -0.1 1.4 0.3 : 0.8
Greece 4.8 1.9 2.6 3.1 3.3 4.5 4.4 2.9 3.2 3.1 3.0 : 2.9
Spain 4.5 1.2 4.1 3.2 2.9 2.6 4.3 3.2 4.3 3.0 3.9 : 3.3
France 3.8 0.9 2.6 2.6 2.3 1.4 2.1 2.0 2.0 2.1 1.8 : 2.5
Ireland 3.1 3.1 7.6 5.6 3.5 3.4 3.8 3.9 4.9 4.9 5.3 : 6.0
Italy 4.4 0.9 2.6 0.8 0.4 1.4 1.0 1.4 1.0 1.9 1.4 : 1.6
Luxembourg 3.8 2.5 4.4 5.1 3.2 1.6 1.4 2.6 1.2 3.0 2.5 : 3.0
Netherlands 3.5 1.6 4.0 1.4 0.9 -0.7 0.0 -0.2 -0.2 -2.4 -3.0 : 1.8
Austria 3.5 2.1 2.2 1.0 0.3 1.6 0.8 1.7 1.2 2.0 1.6 : 2.0
Portugal 4.0 2.3 4.1 -5.8 1.1 -0.3 2.3 1.7 2.2 1.9 1.0 : 1.5
Finland 3.9 -1.1 3.5 1.9 1.5 4.4 3.2 2.6 2.8 2.4 2.6 : 2.4
Euro area 3.8 1.5 2.6 1.8 0.9 1.1 1.6 1.6 1.4 1.8 1.4 : 1.9
Czech Republic : -0.4 2.7 2.6 2.8 4.6 2.1 3.1 2.4 3.6 3.5 : 3.9
Denmark 2.1 2.3 1.5 0.1 0.8 1.4 3.8 3.9 4.1 2.5 2.6 : 2.1
Estonia : : 6.5 6.5 10.7 7.6 4.4 5.5 6.5 5.6 6.5 : 6.2
Cyprus : : 4.2 3.8 1.5 1.9 6.1 3.0 4.3 4.0 4.0 : 3.8
Latvia : : 5.3 7.3 7.4 8.2 9.3 6.6 8.4 5.3 7.8 : 7.5
Lithuania : : 5.4 3.7 6.1 12.6 9.7 6.7 8.2 6.5 8.0 : 7.2
Hungary : : 2.8 5.8 10.3 7.7 3.0 2.9 2.9 3.0 3.9 : 3.4
Malta : : 4.9 -0.2 -1.0 2.0 -0.5 1.0 -0.8 1.5 0.6 : 0.9
Poland : 4.4 5.6 2.0 3.4 3.0 3.2 3.8 2.8 3.9 3.4 : 3.5
Slovenia : 2.1 3.1 2.3 1.3 3.4 3.1 3.5 3.5 3.3 3.4 : 3.3
Slovakia : : 4.4 4.7 5.5 -0.6 3.5 4.6 5.4 4.9 4.6 : 4.8
Sweden 2.4 -0.2 3.2 0.4 1.4 1.5 1.8 2.6 2.3 2.8 3.1 : 2.9
United Kingdom 2.8 1.4 4.0 3.0 3.5 2.6 3.6 2.2 1.7 2.3 1.8 : 2.1
EU-25 : : 2.9 2.0 1.6 1.6 2.1 1.9 1.6 2.0 1.6 : 2.1
EU-15 3.5 1.4 2.8 2.0 1.5 1.4 2.0 1.8 1.5 1.9 1.5 : 2.0
USA 3.7 2.6 4.4 2.5 2.7 2.9 3.9 3.5 3.5 2.5 2.0 : 2.1
Japan 5.8 2.3 0.7 1.1 0.5 0.2 1.5 0.7 1.9 1.2 2.0 : 1.6

TABLE 8 : Government consumption expenditure, volume (percentage change on preceding year, 1961-2007)
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 3.5 1.6 1.9 2.7 2.9 2.5 2.0 2.0 1.1 1.9 1.5 : 1.6
Germany 3.2 2.4 1.4 0.5 1.4 0.1 -1.6 -0.1 -0.4 0.6 0.0 : 0.0
Greece 4.6 0.5 4.4 -1.5 7.3 -2.1 3.9 1.9 2.7 1.3 1.3 : 2.1
Spain 4.9 3.0 3.3 3.9 4.5 4.8 6.0 4.5 5.3 4.2 5.3 : 5.3
France 3.4 2.4 1.6 2.0 2.9 2.0 2.6 2.0 1.7 2.0 1.7 : 1.6
Ireland 3.6 2.7 5.7 10.6 7.4 3.5 2.4 2.7 3.0 2.7 3.0 : 3.0
Italy 3.4 -0.2 0.9 3.9 1.9 2.3 0.6 1.0 1.1 0.5 0.6 : 0.6
Luxembourg 3.6 3.6 4.4 6.5 3.2 5.0 6.0 2.6 4.5 3.0 2.6 : 3.0
Netherlands 3.1 2.1 2.2 4.8 3.3 2.4 0.0 1.5 0.1 7.9 9.5 : 3.0
Austria 2.7 2.8 2.0 -1.2 1.1 1.7 1.0 0.3 1.0 0.2 1.0 : 0.9
Portugal 7.6 2.7 3.8 4.3 2.3 0.3 1.2 0.6 1.0 0.0 -0.2 : 0.0
Finland 4.4 -0.4 1.8 2.5 4.3 1.5 1.6 2.3 1.8 1.9 1.6 : 1.5
Euro area 3.5 1.9 1.7 2.3 2.6 1.7 1.2 1.4 1.3 2.0 2.0 : 1.5
Czech Republic : -4.1 1.5 3.8 4.5 3.8 -2.0 2.7 0.3 2.9 1.9 : 1.4
Denmark 3.6 2.1 2.5 2.2 2.2 0.4 2.0 0.6 0.9 0.5 0.5 : 0.5
Estonia : : 0.5 1.6 6.2 5.9 6.9 5.2 5.7 4.7 5.9 : 6.0
Cyprus : : 6.1 12.6 7.3 5.1 -4.8 1.7 2.0 1.5 2.7 : 2.1
Latvia : : 0.7 2.8 2.2 1.9 2.1 2.5 2.4 2.5 2.6 : 2.6
Lithuania : : 2.0 0.7 1.4 3.8 7.5 5.9 5.2 3.8 4.9 : 5.2
Hungary : : 1.2 6.2 5.4 5.7 -1.9 0.5 0.2 2.0 0.5 : 0.2
Malta : : 1.5 -0.2 4.0 2.9 0.7 0.2 -1.9 0.2 1.1 : 1.3
Poland : 4.7 2.2 0.6 0.4 0.1 1.4 1.1 2.5 1.3 2.8 : 2.9
Slovenia : 1.5 3.4 3.9 3.2 1.6 2.9 3.0 2.6 3.2 2.7 : 2.9
Slovakia : : 3.3 4.6 4.9 2.7 1.1 4.7 2.4 4.6 3.3 : 2.8
Sweden 3.5 0.9 0.7 0.9 2.3 0.8 0.3 1.2 0.3 1.0 1.3 : 0.8
United Kingdom 1.8 1.1 1.8 1.7 4.4 4.5 2.6 3.4 1.2 3.2 1.8 : 2.7
EU-25 : : 1.8 2.1 2.9 2.1 1.3 1.7 1.2 2.1 1.9 : 1.7
EU-15 3.2 1.7 1.8 2.1 2.9 2.1 1.4 1.7 1.2 2.1 1.9 : 1.7
USA 2.5 0.0 1.8 3.3 4.7 3.3 2.5 1.8 1.9 2.2 4.0 : 2.4
Japan 4.4 3.4 3.2 3.0 2.6 1.2 2.7 1.7 1.8 1.2 1.1 : 1.0

124
 ANNEX
TABLE 9 : Total investment, volume (percentage change on preceding year, 1961-2007) 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 3.4 -0.4 4.0 0.2 -2.3 -0.7 4.2 4.5 4.9 5.0 3.9 : 2.2
Germany 2.3 1.9 2.4 -3.6 -6.1 -0.8 -0.2 2.0 -0.5 3.5 1.6 : 2.0
Greece 2.9 -0.4 9.0 6.8 5.7 13.7 5.7 3.1 1.1 3.8 4.2 : 4.3
Spain 6.0 -0.5 7.2 4.5 3.4 5.5 4.9 5.3 6.5 4.3 5.3 : 4.5
France 4.5 -1.0 4.7 2.4 -1.7 2.7 2.5 3.0 2.6 3.5 3.0 : 3.4
Ireland 5.2 2.6 14.5 -0.2 3.6 5.7 7.9 3.3 7.9 4.7 3.2 : 3.3
Italy 2.9 -1.2 4.3 1.9 1.2 -1.8 2.1 1.6 -0.8 3.3 2.8 : 2.2
Luxembourg 3.3 3.2 7.7 10.0 -1.1 -6.3 3.5 7.3 1.5 6.7 4.0 : 7.3
Netherlands 3.0 0.8 5.2 0.2 -4.5 -3.5 2.9 2.1 1.4 3.9 4.5 : 6.3
Austria 3.9 2.2 3.2 -1.5 -5.0 6.1 0.6 2.4 0.5 2.7 2.5 : 2.9
Portugal 4.6 2.2 8.2 -2.9 -5.1 -9.9 1.3 1.4 -2.4 3.2 0.3 : 2.3
Finland 3.3 -9.1 7.0 3.9 -3.1 -1.5 5.0 4.3 1.3 3.3 3.2 : 3.3
Euro area 3.4 0.0 4.3 0.3 -2.0 0.9 2.3 2.8 1.7 3.7 3.1 : 3.2
Czech Republic : 2.1 0.8 5.4 3.4 4.7 7.6 7.9 3.9 6.9 4.2 : 5.4
Denmark 2.7 2.5 6.3 -1.4 0.5 1.6 3.3 4.5 3.8 3.1 4.0 : 3.3
Estonia : : 7.6 13.0 17.2 8.5 6.0 8.3 8.3 6.9 6.5 : 6.1
Cyprus : : 2.6 3.2 8.1 0.7 11.6 6.0 4.5 6.0 4.8 : 4.8
Latvia : : 19.6 11.4 13.0 10.9 17.3 16.3 16.5 14.6 10.0 : 9.5
Lithuania : : 8.3 13.5 11.1 14.0 12.3 14.4 10.1 9.5 8.2 : 8.0
Hungary : : 8.5 5.9 9.3 2.5 7.9 6.3 7.0 6.4 6.8 : 6.6
Malta : : 0.6 -13.5 -21.0 29.0 4.6 6.6 10.1 1.9 4.5 : 3.1
Poland : 5.1 12.8 -8.8 -5.8 -0.5 5.1 10.0 5.5 11.0 8.2 : 10.4
Slovenia : 2.6 10.5 0.4 0.9 7.1 5.9 5.9 3.8 6.3 4.7 : 5.5
Slovakia : : 4.2 13.9 -0.6 -1.5 2.5 9.9 8.4 8.8 8.5 : 5.3
Sweden 3.1 -4.1 5.1 -1.0 -2.6 -1.5 5.5 7.0 8.2 6.2 6.1 : 4.9
United Kingdom 3.3 -0.3 6.1 2.4 3.0 0.0 4.9 5.2 2.7 4.2 3.9 : 4.2
EU-25 : : 4.7 0.5 -1.2 0.8 3.0 3.6 2.3 4.1 3.5 : 3.6
EU-15 3.4 -0.2 4.6 0.5 -1.3 0.7 2.8 3.3 2.1 3.8 3.3 : 3.4
USA 3.6 4.2 8.2 -1.9 -3.9 3.2 8.3 6.4 7.1 3.6 5.5 : 3.9
Japan 7.9 -0.7 0.8 -1.4 -5.7 0.9 1.6 0.3 4.2 1.6 5.0 : 3.8

TABLE 10 : Investment in construction, volume (percentage change on preceding year, 1971-2007)

long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1971-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 1.0 1.7 1.4 -6.3 -2.5 -0.5 5.5 4.3 4.3 5.4 3.4 : -0.6
Germany 0.7 4.0 -1.2 -4.6 -5.8 -1.6 -2.3 -1.7 -4.4 -1.2 -1.2 : -0.4
Greece 0.2 -2.8 5.4 7.0 3.6 11.0 3.7 1.5 -0.3 2.6 3.7 : 3.7
Spain 3.1 0.1 5.6 6.8 6.2 6.3 5.5 4.8 7.0 3.9 4.7 : 3.8
France 1.1 -2.2 1.9 1.3 -1.5 3.3 1.8 2.1 2.4 2.0 2.9 : 3.1
Ireland 2.3 3.7 13.2 4.5 5.1 6.2 8.1 3.1 4.9 3.2 3.0 : 1.9
Italy 0.4 -2.4 1.9 3.0 3.2 1.7 3.1 2.2 1.9 2.0 2.8 : 1.5
Luxembourg 2.3 4.4 5.9 13.4 1.1 4.2 3.6 7.0 1.3 6.0 3.3 : 4.2
Netherlands 0.0 0.8 3.9 1.9 -5.0 -4.9 0.8 0.9 1.1 2.4 2.5 : 4.2
Austria 2.3 3.5 0.7 -4.2 -2.3 4.8 0.5 1.8 1.5 2.2 1.9 : 2.2
Portugal : 3.5 6.7 -4.6 -2.9 -12.0 -1.6 -1.0 -3.6 1.5 -0.5 : 1.5
Finland 2.2 -9.9 8.7 -0.7 -1.9 0.7 4.6 3.5 1.7 3.3 2.7 : 3.3
Euro area ¹ 1.4 0.5 1.5 -0.2 -1.3 1.3 1.7 1.5 1.2 1.8 2.2 : 2.2
Czech Republic : -0.7 -6.5 6.2 -0.8 6.8 11.3 12.1 2.3 7.6 3.9 : 5.3
Denmark -1.2 -1.3 4.6 -2.1 -3.8 1.2 2.3 3.7 3.5 2.4 2.7 : 2.7
Estonia : : : : : : : 6.3 6.5 6.2 6.5 : 6.1
Cyprus : : -0.7 3.8 6.1 9.6 8.4 6.0 3.5 6.0 4.5 : 4.0
Latvia : : : : : : : : : : : : :
Lithuania : : 2.8 8.7 11.3 19.7 4.2 16.4 8.7 10.9 6.5 : 8.1
Hungary : : : : : : : 7.9 9.6 5.7 13.6 : 6.0
Malta : : : : : : : : : : : : :
Poland : : 10.0 -8.5 -2.2 : : : 6.5 : 9.5 : 12.0
Slovenia : -4.2 9.3 -5.5 4.1 5.3 2.7 6.3 5.1 6.5 6.0 : 5.7
Slovakia : : -5.4 40.5 -7.9 -4.5 -9.1 : 8.9 : 9.0 : 5.6
Sweden 0.3 -8.3 -0.2 5.9 2.4 -1.3 3.8 5.5 6.6 5.6 6.3 : 4.8
United Kingdom 1.1 -0.4 5.5 2.3 4.4 6.7 5.1 6.2 2.9 4.8 4.1 : 4.3
EU-25 : : : : : : : : : : : : :
EU-15 ¹ 1.3 0.2 1.9 0.2 -0.5 2.0 2.2 2.5 1.6 2.4 2.6 : 2.6
USA 1.7 1.0 4.7 0.4 -2.3 3.2 5.8 1.7 3.9 -0.1 3.5 : 1.2
Japan 3.3 -1.6 -1.2 -3.1 -3.4 -2.2 : : : : : : :

¹ Excluding Portugal up to 1985.

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TABLE 11 : Investment in equipment, volume (percentage change on preceding year, 1971-2007) 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1971-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 3.8 -3.2 6.7 5.7 -2.8 -2.5 2.3 4.5 5.4 4.5 4.2 : 4.1
Germany 2.2 -1.8 7.7 -3.7 -7.5 -0.2 2.6 5.7 4.2 8.1 4.7 : 4.6
Greece 3.5 4.6 15.9 4.9 6.8 18.3 8.2 3.7 1.1 4.6 5.0 : 5.3
Spain 4.3 -2.5 11.6 0.1 -2.9 2.5 3.7 6.7 6.2 5.7 6.6 : 6.3
France 5.4 0.4 8.0 2.7 -4.0 1.3 2.9 4.5 4.7 5.5 3.8 : 4.3
Ireland 4.5 2.9 16.2 -10.4 2.3 0.4 5.3 3.4 16.8 7.0 3.5 : 6.5
Italy 3.9 -0.1 6.5 0.8 -1.0 -5.2 1.4 1.1 -3.1 4.4 2.7 : 2.6
Luxembourg 4.2 2.1 9.4 8.6 -2.5 -20.0 2.9 8.0 1.5 8.0 5.0 : 6.0
Netherlands 2.9 1.3 5.5 -1.3 -4.9 4.1 5.7 3.4 0.3 5.6 7.7 : 9.0
Austria 3.5 0.1 6.3 0.8 -9.6 8.1 0.5 3.0 -1.0 3.3 3.5 : 3.7
Portugal : 0.0 11.1 -2.7 -10.5 -6.5 6.2 5.0 -1.1 5.7 0.9 : 3.1
Finland 3.7 -9.8 4.4 12.0 -9.8 -6.9 8.2 6.9 0.3 4.1 4.9 : 4.1
Euro area ¹ 3.8 -0.6 7.8 -0.3 -4.4 -0.2 2.9 4.2 2.5 5.9 4.3 : 4.4
Czech Republic : 3.6 8.9 4.5 7.7 3.3 5.1 5.2 5.8 6.4 4.8 : 5.7
Denmark 2.6 5.3 6.3 -0.3 2.8 2.1 5.4 5.3 4.8 3.5 4.9 : 4.0
Estonia : : : : : : : 6.4 13.0 6.5 6.5 : 6.1
Cyprus : : 9.7 1.8 11.8 -12.7 18.0 6.0 6.0 6.0 5.3 : 6.0
Latvia : : : : : : : : : : : : :
Lithuania : : 18.7 22.3 10.8 7.5 24.9 12.0 12.7 7.6 10.8 : 8.2
Hungary : : : : : : : 3.0 4.1 5.4 -3.9 : 7.2
Malta : : : : : : : : : : : : :
Poland : : 14.9 -10.4 -9.6 : : : 4.7 : 7.2 : 9.0
Slovenia : 8.0 12.1 6.4 -2.7 11.4 9.4 5.6 2.2 6.0 3.0 : 5.3
Slovakia : : 10.3 -2.0 1.7 0.6 9.7 : 8.1 : 8.3 : 5.2
Sweden 4.8 0.5 8.2 -4.4 -3.6 -3.0 6.7 8.2 11.0 6.5 6.0 : 5.0
United Kingdom 3.2 0.0 4.6 3.1 0.3 -5.1 3.6 3.9 2.2 3.4 3.7 : 4.0
EU-25 : : : : : : : : : : : : :
EU-15 ¹ 3.7 -0.2 7.4 0.2 -3.4 -1.1 3.2 4.3 2.7 5.5 4.3 : 4.4
USA 5.3 7.7 11.7 -4.2 -5.5 3.1 11.4 10.6 10.0 6.6 7.3 : 6.2
Japan 5.8 -0.7 3.3 1.6 -9.5 9.2 : : : : : : :

¹ Excluding Portugal up to 1985.

TABLE 12 : Public investment (as a percentage of GDP, 1971-2007)

long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1971-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 3.4 1.5 1.8 1.7 1.7 1.7 1.6 1.8 1.8 2.0 2.0 : 1.7
Germany 3.1 2.5 1.9 1.8 1.7 1.5 1.4 1.4 1.3 1.4 1.3 : 1.3
Greece 2.8 3.2 3.5 4.0 3.6 4.0 4.1 3.3 3.1 3.1 3.2 : 3.2
Spain 2.8 4.0 3.2 3.4 3.6 3.6 3.5 3.7 3.5 3.7 3.5 : 3.6
France 3.3 3.2 3.0 3.1 3.1 3.2 3.3 3.4 3.2 3.4 3.2 : 3.3
Ireland 3.9 2.2 2.9 4.3 4.2 3.9 3.7 3.9 3.8 3.9 4.0 : 3.8
Italy 3.2 2.7 2.3 2.5 1.9 2.6 2.6 2.4 2.7 2.9 2.7 : 2.8
Luxembourg : 4.6 4.4 4.4 5.1 5.0 4.7 5.1 5.0 5.1 5.0 : 5.1
Netherlands 2.7 2.1 2.9 3.3 3.6 3.4 3.1 3.5 3.0 3.4 3.0 : 3.0
Austria 4.2 3.1 2.0 1.2 1.3 1.2 1.1 1.2 1.1 1.1 1.1 : 1.0
Portugal 3.0 3.4 4.0 3.9 3.6 3.4 3.1 3.2 2.9 3.0 2.9 : 3.1
Finland 3.8 3.1 2.9 2.8 2.9 3.0 3.0 2.8 3.0 2.7 2.9 : 2.8
Euro area 3.2 2.8 2.5 2.6 2.5 2.6 2.5 2.6 2.5 2.7 2.5 : 2.6
Czech Republic : : 3.7 3.2 3.7 4.4 5.0 3.9 6.0 3.9 6.5 : 6.8
Denmark 3.0 1.7 1.8 1.9 1.8 1.6 1.9 1.8 1.9 1.7 2.0 : 2.0
Estonia : : 4.4 4.1 4.7 4.3 3.0 4.3 3.2 4.2 3.7 : 3.5
Cyprus : : : 3.0 3.0 3.4 4.1 3.6 4.1 3.5 4.1 : 4.1
Latvia : 2.3 1.8 1.1 1.3 1.5 1.5 2.6 2.3 3.1 2.7 : 3.2
Lithuania : : 2.5 2.2 2.9 3.0 3.5 3.4 3.7 3.4 3.6 : 3.5
Hungary : : : 3.8 5.0 3.5 3.6 2.3 3.4 3.1 2.4 : 2.6
Malta : : : 3.8 4.6 5.3 4.4 3.9 4.8 3.7 4.5 : 4.4
Poland : 3.2 3.5 3.5 3.6 3.4 3.5 4.2 4.0 4.7 4.3 : 4.1
Slovenia : : : 3.2 3.0 3.4 3.4 2.9 3.4 2.9 3.4 : 3.4
Slovakia : : 3.8 3.1 3.3 2.6 2.5 2.6 2.6 2.4 2.4 : 2.2
Sweden 3.9 2.5 3.2 3.1 3.2 3.1 3.1 3.0 3.1 3.0 3.2 : 3.1
United Kingdom 3.0 2.0 1.4 1.4 1.5 1.6 1.8 2.0 2.1 2.1 2.4 : 2.5
EU-25 : : : 2.4 2.4 2.5 2.5 2.5 2.5 2.6 2.6 : 2.6
EU-15 3.2 2.7 2.3 2.4 2.3 2.4 2.4 2.5 2.4 2.5 2.5 : 2.6
USA 2.7 2.5 2.5 2.7 2.8 2.7 2.6 3.2 3.2 3.2 3.3 : 3.3
Japan 5.3 5.9 5.6 4.9 4.7 4.2 3.7 3.3 3.4 3.1 3.2 : 3.1

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TABLE 13 : Output gap relative to potential GDP (deviation of actual output from potential output as % of potential GDP, 1986-2007) ¹ 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1965-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium -0.4 -0.4 -0.2 0.7 0.3 -0.7 -0.1 -0.7 -0.8 -0.6 -0.8 : -1.0
Germany -0.4 1.2 -0.5 1.1 0.1 -1.1 -0.6 -1.2 -0.9 -1.0 -0.8 : -0.4
Greece 0.2 -1.5 -2.2 -0.2 0.1 0.6 2.0 2.2 2.0 2.2 2.0 : 2.2
Spain 0.0 -0.8 -0.3 2.4 1.5 0.8 0.2 : 0.0 : -0.2 : -0.5
France -0.1 -0.5 -0.2 1.9 1.1 -0.2 -0.2 -0.6 -0.5 -0.7 -0.9 : -1.0
Ireland -0.1 -2.6 1.8 3.7 3.1 1.4 0.1 -1.5 -1.6 -2.0 -2.2 : -2.6
Italy 0.1 -0.6 0.7 1.8 0.6 -0.4 -0.5 -1.6 -1.5 -1.4 -1.2 : -1.2
Luxembourg : 1.3 0.2 1.2 -1.0 -2.2 -1.8 -1.6 -1.6 -2.0 -1.3 : -1.2
Netherlands -0.5 -0.7 1.2 2.2 0.2 -1.5 -1.3 -2.5 -2.2 -2.4 -1.9 : -1.4
Austria -0.2 0.3 0.4 0.7 -0.2 -0.8 -0.2 -0.6 -0.7 -0.4 -1.0 : -0.9
Portugal -0.1 -0.4 0.7 2.7 1.3 -1.2 -1.3 -2.8 -2.0 -2.7 -2.4 : -2.6
Finland 0.2 -5.3 1.3 0.9 -0.2 -0.8 -0.2 -0.3 -1.2 -0.4 -0.7 : -0.5
Euro area : -0.1 0.0 1.6 0.6 -0.6 -0.4 -1.2 -0.9 -1.2 -0.9 : -0.8
Czech Republic : : : -1.2 -2.3 -2.3 -1.4 0.4 -0.2 1.4 0.6 : 1.2
Denmark -0.3 -2.0 1.2 1.2 -0.3 -1.4 -1.3 -0.4 -0.6 -0.3 -0.4 : -0.4
Estonia : : -2.8 -0.8 -0.2 -0.6 -0.2 -0.5 0.5 -0.5 0.1 : -0.1
Cyprus : : -0.3 2.0 0.3 -0.9 -1.1 -0.6 -0.7 0.2 -0.2 : 0.4
Latvia : : -1.2 0.0 -0.5 -0.3 0.1 0.5 0.8 -0.7 0.3 : -0.7
Lithuania : : -3.9 -2.5 -1.6 2.1 2.1 1.7 2.2 0.8 1.4 : 0.2
Hungary : : -0.6 0.0 -0.6 -1.3 -0.9 -0.6 -0.7 -0.5 -0.3 : 0.2
Malta : : 0.5 1.8 2.1 -1.1 -2.0 -2.2 -3.1 -2.2 -4.3 : -5.1
Poland : : -0.7 -1.8 -2.8 -1.6 0.4 0.8 0.2 1.5 0.4 : 0.6
Slovenia : : : -0.3 -0.5 -1.6 -1.2 -0.4 -0.9 0.2 -0.5 : 0.2
Slovakia : : 0.0 -1.1 -1.1 -2.1 -1.5 0.3 -1.3 1.3 -0.9 : 0.2
Sweden -0.3 -3.2 -0.7 0.2 -0.4 -1.4 -0.3 0.0 -0.4 0.1 -0.1 : 0.0
United Kingdom 0.2 -2.1 0.3 0.8 0.2 0.1 0.6 -0.3 -0.5 -0.3 -0.9 : -0.8
EU-25 : : : 1.3 0.4 -0.6 -0.3 -1.0 -0.8 -0.9 -0.8 : -0.7
EU-15 : -0.5 0.0 1.4 0.5 -0.5 -0.3 -1.0 -0.8 -1.0 -0.9 : -0.8

¹ Output gaps are non observable concepts and can be measured in different ways. Analysis based on them should be treated with prudence.
This is particularly the case for the recently-acceded Member States, where the calculations are based on shorter time series.

TABLE 14 : Deflator of gross domestic product (percentage change on preceding year, 1961-2007)
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 4.9 2.7 1.2 1.8 1.8 1.7 2.3 1.8 2.6 2.1 2.3 : 1.9
Germany 3.9 3.3 0.2 1.2 1.5 1.0 0.8 0.6 0.6 0.7 0.4 : 0.5
Greece 12.2 13.9 5.1 3.5 4.0 3.5 3.6 3.3 3.7 3.3 3.1 : 3.1
Spain 10.3 5.4 2.9 4.2 4.4 4.0 4.0 3.9 4.3 3.7 3.8 : 2.9
France 6.7 1.7 0.9 1.8 2.2 1.6 1.6 1.7 1.4 1.7 1.7 : 1.9
Ireland 8.7 2.9 4.4 5.7 5.0 2.0 2.2 2.6 3.2 2.6 2.5 : 2.6
Italy 9.9 4.9 2.8 2.6 3.1 2.9 2.6 2.3 2.4 2.1 2.2 : 2.2
Luxembourg 4.9 3.5 2.7 1.9 1.1 2.1 2.5 3.2 1.6 2.4 2.3 : 2.5
Netherlands 4.9 2.3 2.1 5.2 3.8 2.5 0.9 0.9 0.9 0.9 0.9 : 1.6
Austria 4.6 3.0 0.7 1.8 1.3 1.4 1.9 1.6 1.6 1.5 1.4 : 1.3
Portugal 11.9 7.9 3.3 3.5 4.0 2.7 2.8 2.3 2.0 2.4 2.2 : 2.5
Finland 8.0 2.5 1.6 3.2 1.0 -0.3 0.5 0.7 0.5 1.2 0.5 : 0.9
Euro area 6.6 3.6 1.4 2.4 2.5 2.0 1.8 1.7 1.8 1.7 1.7 : 1.7
Czech Republic : 18.3 6.4 4.9 2.8 2.6 3.0 3.8 2.7 3.2 2.5 : 2.2
Denmark 7.5 1.6 2.0 2.5 1.5 2.2 2.1 1.7 2.3 1.8 2.0 : 1.9
Estonia : : 10.5 5.6 4.4 2.1 3.1 3.5 4.7 2.9 3.2 : 2.9
Cyprus : 3.9 2.6 3.2 2.2 5.3 2.8 2.9 2.5 2.4 2.2 : 2.1
Latvia : 133.9 6.9 2.1 3.4 3.6 7.2 4.1 6.2 3.8 7.0 : 6.1
Lithuania : 218.7 7.9 -1.2 0.2 -1.1 2.8 3.0 3.2 3.5 4.1 : 4.0
Hungary : : 14.0 8.6 8.9 6.8 6.0 4.8 3.3 4.1 2.7 : 3.0
Malta : : 1.8 1.8 2.0 4.6 2.0 2.6 2.8 1.2 2.8 : 2.3
Poland : 37.6 11.3 4.0 1.3 0.5 2.9 1.8 2.3 2.0 2.2 : 2.5
Slovenia : 65.5 7.6 8.7 7.9 5.8 3.2 3.1 2.5 2.7 2.5 : 2.5
Slovakia : : 6.2 4.2 4.0 4.7 4.6 2.9 2.7 2.6 3.1 : 2.8
Sweden 7.2 3.7 1.1 2.3 1.7 2.1 0.8 1.3 1.2 2.0 1.8 : 2.2
United Kingdom 8.1 3.4 2.5 2.3 3.1 2.9 2.0 2.2 2.2 2.5 2.6 : 2.6
EU-25 : : 1.9 2.4 2.6 2.2 1.9 1.9 1.9 1.9 1.9 : 1.9
EU-15 6.9 3.5 1.6 2.3 2.6 2.2 1.8 1.8 1.8 1.9 1.9 : 1.9
USA 4.7 2.5 1.7 2.4 1.8 2.0 2.6 2.3 2.7 2.2 2.9 : 2.4
Japan 5.2 0.9 -0.7 -1.3 -1.3 -1.4 -1.2 -0.8 -1.0 -0.2 -0.3 : 0.9

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TABLE 15 : Price deflator of private consumption (percentage change on preceding year, 1961-2007) 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 4.7 2.2 1.5 2.3 1.3 1.6 2.5 2.2 2.9 1.8 2.7 : 2.0
Germany 3.4 3.0 0.8 1.8 1.2 1.5 1.4 1.3 1.7 1.1 1.6 : 1.1
Greece 11.5 13.8 4.8 3.3 3.7 3.4 2.9 3.1 3.7 3.1 3.3 : 3.0
Spain 10.0 5.6 2.8 3.4 2.9 2.8 3.4 2.9 3.7 2.7 3.4 : 2.9
France 6.8 1.9 0.9 1.7 1.0 1.4 1.7 2.0 1.3 1.8 1.7 : 1.6
Ireland 8.7 2.7 3.4 3.6 5.4 3.9 1.0 2.2 1.8 2.5 2.4 : 2.3
Italy 9.4 5.8 2.8 2.8 3.1 2.5 2.2 2.0 2.0 1.9 2.1 : 1.9
Luxembourg 4.6 3.2 1.6 3.2 2.1 1.9 2.1 2.0 2.6 1.8 3.0 : 2.0
Netherlands 4.6 2.6 2.1 4.6 3.0 2.2 1.1 1.4 1.7 1.2 2.0 : 1.8
Austria 4.4 3.1 1.4 1.9 1.0 1.5 2.0 2.3 2.3 1.7 2.1 : 1.7
Portugal 12.2 7.5 2.9 11.0 3.3 2.8 2.7 2.3 2.2 2.1 2.7 : 2.2
Finland 7.4 3.1 2.0 3.6 2.9 0.0 0.1 1.6 1.5 1.8 1.1 : 1.0
Euro area 6.4 3.8 1.6 2.5 1.9 1.9 1.9 1.9 2.0 1.7 2.1 : 1.7
Czech Republic : 18.3 6.0 3.5 0.7 1.8 2.7 2.1 2.1 2.5 2.3 : 2.3
Denmark 7.4 1.9 1.9 2.3 2.3 2.0 1.6 1.7 1.7 1.7 2.0 : 1.9
Estonia : : 10.0 6.1 3.2 0.7 2.6 3.2 4.1 2.7 3.3 : 2.6
Cyprus : : 2.4 1.9 2.5 3.6 2.2 2.5 2.6 2.3 2.3 : 2.2
Latvia : : 6.9 2.6 2.2 3.0 6.0 5.0 6.5 3.6 6.0 : 4.8
Lithuania : : 6.0 2.4 -0.1 -2.7 1.1 2.8 2.4 2.5 2.7 : 2.8
Hungary : : 14.7 8.1 3.6 4.5 7.5 4.8 3.6 4.3 2.1 : 3.0
Malta : : 1.7 1.6 1.6 0.7 3.4 2.1 3.2 2.2 2.8 : 2.4
Poland : 41.1 12.0 4.7 1.6 0.7 3.3 2.1 1.9 2.3 2.1 : 2.3
Slovenia : 64.9 8.1 7.6 7.9 5.4 3.5 2.5 2.5 2.5 2.4 : 2.3
Slovakia : : 7.2 5.9 2.5 7.7 6.9 3.6 2.9 2.8 3.4 : 2.0
Sweden 7.2 4.8 1.3 2.4 1.8 2.3 1.2 0.7 1.0 1.5 1.5 : 1.8
United Kingdom 7.7 4.2 2.3 2.3 1.5 2.0 1.3 1.9 2.4 2.0 2.4 : 2.0
EU-25 : : 2.0 2.6 1.9 2.0 1.9 1.9 2.1 1.8 2.1 : 1.8
EU-15 6.6 3.8 1.7 2.5 1.9 1.9 1.8 1.9 2.1 1.8 2.1 : 1.8
USA 4.6 2.6 1.8 2.1 1.4 1.9 2.6 2.4 2.9 2.3 2.8 : 2.2
Japan 5.5 1.1 -0.1 -1.0 -1.2 -0.7 -0.5 -0.4 -0.5 -0.1 0.0 : 1.2

TABLE 16 : Harmonised index of consumer prices (national index if not available), (percentage change on preceding year, 1961-2007)
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 5.1 2.4 1.6 2.4 1.6 1.5 1.9 2.0 2.7 1.8 2.6 : 1.9
Germany 3.5 3.1 1.1 1.9 1.3 1.0 1.8 1.3 2.0 1.1 1.6 : 1.1
Greece 11.6 13.9 4.6 3.7 3.9 3.4 3.0 3.2 3.5 3.2 3.1 : 3.0
Spain 10.1 5.2 2.6 2.8 3.6 3.1 3.1 2.9 3.6 2.7 3.3 : 2.6
France 6.7 2.2 1.3 1.8 1.9 2.2 2.3 1.9 2.0 1.8 2.1 : 1.9
Ireland 8.6 2.5 2.6 4.0 4.7 4.0 2.3 2.1 2.2 2.4 2.5 : 2.4
Italy 9.1 5.0 2.4 2.3 2.6 2.8 2.3 2.0 2.2 1.9 2.1 : 1.9
Luxembourg 4.6 2.8 1.7 2.4 2.1 2.5 3.2 3.1 4.1 1.9 4.4 : 2.2
Netherlands 4.7 2.9 1.9 5.1 3.9 2.2 1.4 1.3 1.7 -3.0 2.0 : 1.9
Austria 4.5 3.2 1.2 2.3 1.7 1.3 2.0 2.3 2.2 1.7 2.1 : 1.7
Portugal 13.2 7.1 2.4 4.4 3.7 3.3 2.5 2.3 2.2 2.1 2.7 : 2.2
Finland 7.6 2.3 1.6 2.7 2.0 1.3 0.1 1.1 1.0 1.4 1.4 : 1.3
Euro area 6.9 3.5 1.7 2.4 2.3 2.1 2.1 1.9 2.3 1.5 2.2 : 1.8
Czech Republic : : 6.5 4.5 1.4 -0.1 2.6 1.9 1.7 2.6 2.9 : 2.6
Denmark 7.2 2.0 2.0 2.3 2.4 2.0 0.9 1.4 1.7 1.7 2.0 : 1.9
Estonia : : 8.8 5.6 3.6 1.4 3.0 3.3 4.1 2.7 3.3 : 2.6
Cyprus : : : 2.0 2.8 4.0 1.9 2.3 2.3 2.1 2.1 : 2.1
Latvia : : : 2.5 2.0 2.9 6.2 5.0 6.8 3.6 6.0 : 4.8
Lithuania : : 7.7 1.3 0.4 -1.1 1.1 2.9 2.6 2.6 2.8 : 2.9
Hungary : : 15.1 9.1 5.2 4.7 6.8 3.8 3.7 3.6 2.0 : 3.0
Malta : : : 2.5 2.6 1.9 2.7 2.4 3.1 2.1 2.6 : 2.2
Poland : : : 5.3 1.9 0.7 3.6 2.1 2.2 2.3 2.3 : 2.5
Slovenia : : 8.2 8.6 7.5 5.7 3.6 2.6 2.6 2.6 2.5 : 2.5
Slovakia : : 8.2 7.2 3.5 8.4 7.5 3.7 2.9 2.9 3.6 : 2.1
Sweden 6.9 4.2 1.1 2.7 2.0 2.3 1.0 0.4 0.7 1.4 1.4 : 1.8
United Kingdom 8.0 3.4 1.6 1.2 1.3 1.4 1.3 1.7 2.4 2.0 2.2 : 2.0
EU-25 : : 2.4 2.5 2.1 1.9 2.1 1.9 2.3 1.7 2.2 : 1.9
EU-15 7.1 3.7 1.7 2.2 2.1 2.0 2.0 1.8 2.3 1.6 2.2 : 1.9
USA 5.1 3.1 2.5 2.8 1.6 2.3 2.7 2.6 3.3 2.3 2.9 : 2.2
Japan 5.6 1.4 0.3 -0.6 -0.9 -0.3 0.0 -0.1 -0.2 0.2 0.3 : 2.0

128
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TABLE 17 : Profiles of quarterly harmonised index of consumer prices (percentage change on corresponding quarter in previous year, 200507.11.2005

2005/1 2005/2 2005/3 2005/4 2006/1 2006/2 2006/3 2006/4 2007/1 2007/2 2007/3 2007/4
Belgium 2.4 2.5 2.8 3.1 3.5 2.6 2.5 1.8 1.9 1.9 1.9 2.0
Germany 1.7 1.6 2.1 2.5 2.3 1.9 1.3 1.1 1.1 1.1 1.1 1.0
Greece 3.4 3.2 3.7 3.6 2.9 2.8 3.3 3.1 3.0 2.9 3.2 3.2
Spain 3.3 3.2 3.7 4.0 3.6 3.6 3.0 2.9 2.9 2.8 2.4 2.4
France 1.9 1.8 2.2 2.2 2.6 2.2 1.9 1.7 1.7 2.0 2.0 2.0
Ireland 2.0 2.1 2.3 2.5 2.9 2.6 2.3 2.2 2.2 2.2 2.4 2.5
Italy 2.0 2.2 2.2 2.4 2.3 2.2 2.1 2.0 2.0 2.0 1.9 1.8
Luxembourg 3.2 3.6 4.3 5.2 5.9 4.7 4.3 3.0 2.7 2.4 2.0 1.6
Netherlands 1.4 1.3 1.6 2.5 2.3 1.9 2.3 1.6 1.6 1.8 1.9 2.1
Austria 2.3 2.1 2.2 2.3 2.3 2.2 2.2 1.7 1.6 1.7 1.7 1.8
Portugal 2.1 1.8 2.4 2.7 3.6 3.0 2.5 2.1 2.1 2.1 2.3 2.4
Finland 0.2 0.9 1.4 1.3 1.7 1.5 1.4 1.3 1.3 1.3 1.2 1.4
Euro area 2.0 2.0 2.4 2.6 2.6 2.3 2.0 1.8 1.8 1.8 1.8 1.8
Czech Republic 1.4 1.2 1.7 2.5 3.7 3.0 2.6 2.5 2.6 2.5 2.8 2.6
Denmark 1.0 1.6 2.2 2.0 1.9 2.1 2.0 2.0 1.9 1.6 2.0 2.1
Estonia 4.5 3.6 4.0 4.3 4.0 3.4 3.1 2.7 2.6 2.5 2.5 2.7
Cyprus 2.5 2.1 1.5 3.2 3.2 2.2 1.6 1.4 1.8 1.9 2.0 2.6
Latvia 6.8 6.7 6.6 7.2 6.8 5.9 5.6 5.6 5.2 4.1 4.9 4.9
Lithuania 3.1 2.4 2.2 2.6 2.6 2.8 3.1 2.8 3.1 2.8 2.9 2.9
Hungary 3.5 3.6 3.9 3.7 1.8 1.9 2.1 2.3 2.8 3.0 3.1 3.1
Malta : : : : : : : : : : : :
Poland 3.6 2.2 1.4 1.7 2.5 2.3 2.0 2.4 2.7 2.6 2.5 2.4
Slovenia 2.8 2.2 2.3 3.1 2.6 2.5 2.5 2.4 2.6 2.5 2.4 2.4
Slovakia 2.8 2.6 2.2 4.1 4.2 3.9 3.9 2.6 2.3 2.1 2.0 2.0
Sweden 0.7 0.5 0.8 0.8 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9
United Kingdom 1.7 2.0 2.8 2.9 2.5 2.3 2.1 2.0 2.1 2.0 2.0 1.9
EU-25 2.0 2.0 2.4 2.6 2.5 2.3 2.0 1.8 1.9 1.9 1.9 1.9
EU-15 2.0 2.0 2.4 2.6 2.5 2.3 2.0 1.8 1.9 1.9 1.9 1.9
USA 3.0 2.9 3.7 3.5 3.6 3.2 2.5 2.4 2.3 2.3 2.2 2.2
Japan -0.2 -0.1 -0.3 -0.2 0.3 0.4 0.5 0.1 0.4 2.5 2.6 2.6

TABLE 18 : Price deflator of exports of goods in national currency (percentage change on preceding year, 1961-2007)
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 4.1 0.5 3.0 2.2 -0.9 -2.9 1.9 1.5 5.8 1.6 2.2 : 1.9
Germany 2.7 0.7 0.3 0.5 -0.9 -1.0 0.0 0.5 0.7 0.6 0.3 : 0.2
Greece 10.0 8.7 5.0 0.5 2.0 0.3 2.8 1.8 2.5 1.3 1.4 : 1.0
Spain : 3.1 2.2 0.6 -0.6 -1.3 1.7 0.9 2.8 0.8 2.6 : 2.0
France 5.0 -1.5 0.5 -0.9 -2.5 -1.9 2.0 0.5 1.2 0.3 1.7 : 1.9
Ireland 7.4 1.1 2.4 3.8 -1.5 -8.8 -2.4 0.4 1.9 0.8 1.9 : 1.2
Italy 7.5 5.5 1.6 3.2 1.4 0.5 4.1 2.3 5.3 1.6 3.1 : 2.3
Luxembourg : -0.4 -0.1 -0.9 0.2 0.0 6.0 1.5 1.0 1.5 1.5 : 2.0
Netherlands 2.8 -0.8 1.8 1.1 -3.2 -1.8 0.1 1.6 2.8 0.3 1.1 : 2.0
Austria : -0.1 0.8 0.2 -0.1 -0.6 0.9 0.6 1.0 0.7 0.4 : 0.4
Portugal : 1.4 1.3 0.5 -0.5 -3.9 0.4 0.6 1.2 0.0 1.7 : 1.7
Finland : 3.7 -1.4 -3.1 -5.2 -3.7 0.1 0.4 -0.7 0.2 0.4 : 0.1
Euro area 4.3 1.0 1.1 0.8 -1.2 -1.6 1.1 1.0 2.2 0.7 1.4 : 1.3
Czech Republic : : 3.0 -1.0 -6.8 -0.8 1.8 -1.1 -0.1 1.5 2.3 : 2.4
Denmark : 0.1 1.3 1.3 -1.9 -1.3 1.6 2.0 5.6 0.3 3.6 : 0.6
Estonia : : 5.8 10.2 -4.3 2.9 0.5 3.1 4.2 2.6 3.2 : 2.9
Cyprus : : 2.8 3.5 -4.0 -0.8 1.2 1.8 2.8 2.5 2.6 : 1.0
Latvia : : 0.5 2.6 2.8 7.9 16.6 8.5 14.9 2.5 6.0 : 2.2
Lithuania : : 3.0 -3.1 -6.3 -0.9 7.7 2.3 8.2 1.1 5.7 : 4.2
Hungary : : 11.8 2.2 -5.0 -0.3 -1.5 -0.1 -1.6 -0.2 1.6 : 1.0
Malta : : 6.0 -22.3 3.1 -3.0 -6.1 0.8 1.1 1.6 1.6 : 1.3
Poland : : 7.1 1.3 4.8 5.8 1.8 -10.0 1.0 2.3 1.8 : 2.3
Slovenia : 57.1 6.1 8.0 3.7 2.0 2.6 1.0 1.5 0.9 0.9 : 0.7
Slovakia : : 4.6 5.3 1.0 -4.0 -1.9 -1.9 0.5 0.4 2.4 : 2.3
Sweden : 3.2 -1.6 2.3 -2.3 -2.7 -0.2 0.3 3.8 0.1 1.1 : 0.6
United Kingdom 6.7 2.9 -2.2 -1.5 -0.2 1.4 -0.5 3.6 3.4 1.7 2.9 : 2.2
EU-25 : : 1.1 0.7 -1.2 -1.2 0.9 0.9 2.3 0.9 1.6 : 1.4
EU-15 4.6 1.2 0.7 0.7 -1.2 -1.4 0.9 1.3 2.5 0.8 1.6 : 1.3
USA 3.9 0.2 -1.8 -0.7 -0.6 2.0 3.7 3.4 3.1 2.2 2.1 : 2.0
Japan : : : : : : : -1.2 3.4 -0.8 5.4 : 6.1

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TABLE 19 : Price deflator of imports of goods in national currency (percentage change on preceding year, 1961-2007) 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 4.3 -0.7 4.0 2.4 -1.8 -2.4 2.7 1.5 6.2 1.0 2.4 : 2.0
Germany 2.2 -0.7 1.1 0.2 -3.4 -3.0 0.0 1.2 3.5 0.8 2.7 : 1.4
Greece 10.6 8.5 4.7 2.0 0.9 1.3 0.9 1.7 3.5 0.4 2.5 : 0.8
Spain : 2.3 2.4 -1.5 -3.2 -1.5 1.8 1.5 3.6 1.1 2.7 : 2.1
France 5.6 -1.6 0.9 -1.2 -4.2 -2.0 1.7 2.0 2.4 0.5 1.5 : 1.1
Ireland 7.2 2.4 2.6 3.0 -3.8 -8.4 -2.3 1.1 3.2 0.4 2.9 : 1.1
Italy 7.8 4.9 2.1 2.4 -0.2 -0.4 5.1 2.5 7.5 0.2 3.1 : 1.0
Luxembourg : 0.4 0.9 0.7 -0.3 -0.7 7.8 1.0 4.5 1.0 2.0 : 2.0
Netherlands 2.8 -1.2 2.2 -0.2 -4.6 -3.2 0.6 2.1 3.7 0.2 2.5 : 2.0
Austria : 0.1 1.2 -0.4 -2.3 -1.4 1.0 1.4 2.7 1.3 1.8 : 1.0
Portugal : 0.3 2.0 -0.2 -2.6 -3.1 1.9 0.8 4.2 -0.1 3.2 : 1.1
Finland : 3.7 -0.1 -3.7 -2.7 -0.1 3.4 2.5 4.4 1.1 3.4 : 1.3
Euro area 4.6 0.4 1.8 0.2 -3.0 -2.3 1.5 1.7 4.1 0.7 2.5 : 1.5
Czech Republic : : 2.7 -2.6 -8.6 -0.2 1.6 -3.0 0.5 1.1 2.2 : 2.5
Denmark : -0.4 0.1 0.3 -0.9 -1.2 1.5 2.1 3.9 0.4 2.9 : 0.9
Estonia : : 5.9 4.0 0.1 -1.5 1.7 2.7 5.2 2.2 4.1 : 3.1
Cyprus : : 2.7 0.5 -0.6 -1.5 3.7 3.1 5.3 2.0 3.7 : 0.5
Latvia : : 4.3 1.5 6.0 6.9 9.6 8.0 13.8 2.0 5.0 : 1.1
Lithuania : : -0.1 -3.0 -4.7 -3.4 -0.5 1.6 6.1 0.8 3.7 : 3.0
Hungary : : 12.7 2.5 -5.4 0.1 -0.9 -0.3 -0.5 0.2 1.3 : 1.0
Malta : : 5.5 -10.2 2.5 -5.7 -3.0 2.9 1.8 2.1 1.5 : 1.4
Poland : : 8.6 1.3 5.2 6.9 15.2 -9.3 -1.2 1.8 1.5 : 1.8
Slovenia : 55.0 6.5 5.8 1.7 1.5 4.1 1.9 3.6 0.7 2.1 : 1.1
Slovakia : : 5.3 8.2 -0.2 -3.2 -1.8 -1.4 1.5 0.1 2.6 : 1.6
Sweden : 3.5 0.0 3.5 -0.5 -2.8 0.8 0.3 5.3 -0.7 1.7 : 0.2
United Kingdom 6.8 3.4 -2.6 -0.9 -2.9 -0.7 -0.5 3.5 3.3 1.6 2.4 : 1.7
EU-25 : : 1.6 0.3 -2.7 -1.8 1.5 1.5 3.7 0.8 2.4 : 1.5
EU-15 5.0 0.9 1.1 0.2 -2.9 -2.1 1.2 1.9 4.0 0.7 2.4 : 1.4
USA 5.3 0.1 -1.6 -3.0 -1.8 2.9 5.0 3.8 6.1 2.6 3.4 : 2.1
Japan : : : : : : : 0.0 7.5 -2.5 6.5 : 3.0

TABLE 20 : Terms of trade of goods (percentage change on preceding year, 1961-2007)

long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium -0.2 1.2 -0.9 -0.2 0.9 -0.5 -0.8 0.0 -0.4 0.6 -0.2 : -0.1
Germany 0.5 1.4 -0.8 0.3 2.5 2.0 0.0 -0.7 -2.7 -0.2 -2.3 : -1.3
Greece -0.5 0.2 0.3 -1.4 1.1 -1.0 1.9 0.2 -1.0 0.9 -1.1 : 0.2
Spain : 0.8 -0.2 2.1 2.7 0.2 -0.1 -0.6 -0.7 -0.3 -0.1 : -0.1
France -0.5 0.2 -0.5 0.3 1.9 0.1 0.3 -1.4 -1.2 -0.2 0.3 : 0.8
Ireland 0.1 -1.2 -0.2 0.8 2.4 -0.5 -0.1 -0.7 -1.3 0.5 -1.0 : 0.1
Italy -0.3 0.5 -0.5 0.8 1.6 0.9 -0.9 -0.2 -2.0 1.4 0.0 : 1.3
Luxembourg : -0.8 -1.1 -1.6 0.5 0.7 -1.7 0.5 -3.4 0.5 -0.5 : 0.0
Netherlands -0.1 0.5 -0.4 1.2 1.5 1.4 -0.4 -0.5 -0.9 0.1 -1.4 : 0.0
Austria : -0.1 -0.4 0.7 2.3 0.8 -0.1 -0.8 -1.7 -0.6 -1.4 : -0.6
Portugal : 1.2 -0.7 0.7 2.2 -0.8 -1.5 -0.2 -2.9 0.2 -1.5 : 0.6
Finland : -0.1 -1.3 0.5 -2.5 -3.6 -3.2 -2.1 -4.9 -1.0 -2.9 : -1.1
Euro area -0.3 0.6 -0.7 0.6 1.8 0.7 -0.4 -0.7 -1.8 0.1 -1.1 : -0.2
Czech Republic : : 0.2 1.6 2.0 -0.6 0.2 2.0 -0.6 0.4 0.1 : -0.1
Denmark : 0.5 1.2 1.0 -1.0 -0.1 0.0 -0.2 1.6 -0.1 0.7 : -0.3
Estonia : : 0.0 6.0 -4.4 4.5 -1.2 0.4 -1.0 0.4 -0.9 : -0.2
Cyprus : : 0.1 3.0 -3.4 0.7 -2.4 -1.3 -2.4 0.5 -1.1 : 0.5
Latvia : : -3.7 1.1 -3.0 1.0 6.5 0.5 1.0 0.5 1.0 : 1.0
Lithuania : : 3.1 0.0 -1.6 2.6 8.3 0.7 2.0 0.3 1.9 : 1.2
Hungary : : -0.8 -0.3 0.4 -0.4 -0.6 0.1 -1.0 -0.3 0.4 : 0.0
Malta : : 0.5 -13.5 0.6 2.9 -3.2 -2.0 -0.7 -0.5 0.1 : -0.1
Poland : : -1.3 0.0 -0.4 -1.1 -11.7 -0.8 2.2 0.5 0.3 : 0.5
Slovenia : 1.4 -0.4 2.1 2.0 0.5 -1.4 -0.9 -2.0 0.2 -1.2 : -0.4
Slovakia : : -0.6 -2.7 1.3 -0.8 -0.1 -0.5 -1.0 0.2 -0.2 : 0.7
Sweden : -0.2 -1.6 -1.2 -1.8 0.1 -0.9 0.0 -1.4 0.8 -0.6 : 0.4
United Kingdom -0.1 -0.4 0.5 -0.5 2.8 2.1 0.0 0.1 0.1 0.1 0.5 : 0.5
EU-25 : : -0.5 0.5 1.6 0.6 -0.6 -0.5 -1.3 0.1 -0.7 : -0.1
EU-15 -0.3 0.3 -0.4 0.5 1.7 0.7 -0.3 -0.6 -1.5 0.1 -0.8 : -0.1
USA -1.3 0.2 -0.1 2.4 1.1 -0.9 -1.2 -0.3 -2.8 -0.4 -1.2 : -0.1
Japan : : : : : : : -1.2 -3.8 1.7 -1.0 : 3.0

130
 ANNEX
TABLE 21 : Compensation of employees per head (percentage change on preceding year, 1961-2007) 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 8.4 4.8 2.2 3.5 4.1 1.6 2.1 2.2 2.6 2.2 2.7 : 2.4
Germany 6.7 6.1 2.4 2.3 2.0 2.4 1.4 0.5 -0.1 1.4 0.2 : 1.2
Greece 15.7 12.1 8.0 5.7 10.1 4.6 6.2 5.9 6.2 6.1 5.6 : 5.0
Spain 14.9 7.2 2.6 3.6 3.3 3.4 3.3 3.7 3.1 3.7 3.9 : 3.5
France 10.1 3.1 2.3 2.3 3.0 2.4 3.1 2.8 2.9 2.9 2.7 : 3.0
Ireland 12.4 4.6 5.3 7.4 5.1 5.6 5.5 5.0 4.9 4.7 4.5 : 4.5
Italy 13.6 5.3 2.8 3.2 2.5 3.8 2.9 3.0 2.9 2.9 2.6 : 2.7
Luxembourg 7.7 4.6 2.9 3.9 3.7 2.1 2.6 3.0 3.5 2.5 3.2 : 3.0
Netherlands 7.9 3.5 3.0 5.5 5.2 4.0 3.3 0.7 1.4 0.0 1.0 : 1.3
Austria 7.9 4.9 1.9 1.4 2.1 1.9 2.3 2.5 2.2 2.6 2.7 : 2.3
Portugal 17.0 10.6 7.3 -1.5 4.4 2.6 3.0 3.1 3.0 3.3 2.9 : 3.0
Finland 11.5 3.2 2.9 4.7 1.8 2.6 4.1 4.1 3.0 3.8 2.9 : 2.8
Euro area 9.8 5.2 2.4 2.7 2.7 2.6 2.4 2.2 1.8 2.4 2.0 : 2.4
Czech Republic : : 10.2 7.6 6.2 4.9 5.9 6.5 4.6 6.4 5.6 : 5.4
Denmark 9.8 3.1 3.8 4.4 3.8 3.5 3.2 3.3 3.3 3.6 3.6 : 3.8
Estonia : : 16.8 7.6 10.3 10.9 10.8 6.1 12.8 6.4 10.0 : 8.3
Cyprus : : 4.1 1.0 4.1 9.3 4.2 4.5 4.5 4.0 4.0 : 4.0
Latvia : : 11.9 3.4 4.0 11.3 16.5 8.0 16.0 7.0 12.0 : 10.0
Lithuania : : 15.6 3.6 0.9 8.8 8.1 7.9 9.1 7.5 8.1 : 6.8
Hungary : : 15.0 15.9 12.7 9.7 8.2 7.0 5.5 6.2 5.2 : 4.5
Malta : 8.3 4.6 5.1 2.7 1.2 0.6 1.4 1.5 1.6 2.2 : 1.6
Poland : : 17.6 13.1 2.0 0.8 3.0 4.1 4.1 4.4 4.4 : 4.4
Slovenia : : 11.0 11.6 8.5 7.8 7.7 5.0 6.1 5.2 5.6 : 5.9
Slovakia : : 10.9 6.3 9.3 6.0 10.8 7.1 8.2 6.1 6.5 : 5.9
Sweden 9.4 4.7 4.7 4.5 2.9 3.0 3.4 3.5 3.5 3.9 3.5 : 4.0
United Kingdom 10.4 4.9 4.6 5.0 3.6 4.8 4.2 4.7 4.1 5.1 4.5 : 4.5
EU-25 : : 3.5 3.8 3.1 3.1 2.9 2.8 2.4 3.1 2.7 : 3.0
EU-15 9.8 5.1 2.9 3.2 2.9 3.1 2.8 2.7 2.3 3.0 2.5 : 2.9
USA 6.2 3.5 4.2 2.4 3.6 4.2 4.8 4.8 4.9 4.6 4.4 : 4.4
Japan 10.1 2.0 0.2 -0.5 -1.5 -0.6 -1.1 0.0 -0.2 -0.1 0.1 : 0.3

TABLE 22 : Real compensation of employees per head ¹ (percentage change on preceding year, 1961-2007)
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 3.6 2.5 0.6 1.3 2.8 0.0 -0.4 0.0 -0.3 0.4 0.0 : 0.4
Germany 3.2 3.0 1.5 0.5 0.8 0.9 0.0 -0.8 -1.8 0.3 -1.3 : 0.1
Greece 3.7 -1.5 3.1 2.3 6.1 1.1 3.3 2.7 2.4 2.9 2.3 : 1.9
Spain 4.5 1.5 -0.1 0.2 0.4 0.5 -0.1 0.8 -0.6 1.0 0.4 : 0.6
France 3.2 1.2 1.4 0.5 1.9 1.0 1.3 0.8 1.6 1.0 1.0 : 1.4
Ireland 3.5 1.9 1.8 3.7 -0.3 1.6 4.5 2.7 3.0 2.1 2.1 : 2.2
Italy 3.8 -0.5 0.1 0.4 -0.5 1.2 0.6 0.9 0.9 1.0 0.4 : 0.8
Luxembourg 3.0 1.3 1.3 0.7 1.5 0.2 0.5 0.9 0.9 0.7 0.2 : 1.0
Netherlands 3.2 0.9 0.9 0.8 2.1 1.8 2.2 -0.7 -0.3 -1.2 -0.9 : -0.5
Austria 3.4 1.8 0.6 -0.5 1.1 0.4 0.3 0.2 -0.1 0.9 0.6 : 0.6
Portugal 4.2 2.8 4.4 -11.2 1.1 -0.3 0.2 0.8 0.8 1.2 0.2 : 0.8
Finland 3.8 0.1 0.8 1.0 -1.0 2.7 3.9 2.5 1.5 2.0 1.8 : 1.8
Euro area 3.2 1.4 0.8 0.1 0.8 0.7 0.5 0.2 -0.3 0.7 -0.1 : 0.6
Czech Republic : : : : : : : 4.3 2.4 3.8 3.2 : 3.0
Denmark 2.2 1.1 1.8 2.0 1.4 1.5 1.5 1.6 1.5 1.8 1.6 : 1.9
Estonia : : : : : : : 2.8 8.4 3.6 6.5 : 5.6
Cyprus : : : : : : : 2.0 1.9 1.7 1.7 : 1.8
Latvia : : : : : : : 2.9 8.9 3.3 5.7 : 5.0
Lithuania : : : : : : : 5.0 6.5 4.9 5.3 : 3.9
Hungary : : : : : : : 2.1 1.8 1.8 3.0 : 1.5
Malta : : : : : : : -0.7 -1.6 -0.6 -0.6 : -0.8
Poland : : 5.0 8.1 0.3 0.1 -0.3 2.0 2.2 2.1 2.3 : 2.1
Slovenia : : : : : : : 2.4 3.5 2.6 3.1 : 3.5
Slovakia : : : : : : : 3.4 5.2 3.2 3.0 : 3.8
Sweden 2.0 -0.1 3.4 2.1 1.1 0.7 2.2 2.8 2.5 2.4 2.0 : 2.2
United Kingdom 2.5 0.6 2.3 2.6 2.1 2.8 2.9 2.8 1.6 3.0 2.0 : 2.5
EU-25 : : : : : : : 0.9 0.3 1.2 0.5 : 1.2
EU-15 3.0 1.2 1.1 0.7 1.1 1.1 1.0 0.8 0.2 1.2 0.4 : 1.1
USA 1.5 0.8 2.4 0.3 2.1 2.2 2.2 2.3 2.0 2.2 1.6 : 2.1
Japan 4.3 0.9 0.2 0.5 -0.4 0.2 -0.5 0.4 0.3 0.0 0.1 : -0.9

¹ Deflated by the price deflator of private consumption.

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TABLE 23 : Labour productivity (real GDP per occupied person) (percentage change on preceding year, 1961-2007) 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 3.1 1.6 1.4 -0.4 1.8 0.9 1.9 1.4 0.8 1.5 1.4 : 1.3
Germany 2.7 2.2 1.2 0.8 0.6 0.8 1.3 0.1 0.5 0.8 0.7 : 1.2
Greece 4.2 0.7 2.8 5.0 3.7 3.2 1.7 2.3 2.2 2.3 2.1 : 2.1
Spain 4.2 1.9 0.3 0.3 0.3 0.4 0.5 0.6 0.4 0.7 0.8 : 0.8
France 3.4 1.8 1.7 0.2 0.3 0.7 2.5 1.5 1.5 1.4 1.3 : 1.4
Ireland 3.9 2.9 3.7 3.1 4.3 2.4 1.3 3.1 0.6 3.5 2.6 : 2.9
Italy 3.5 2.1 1.1 0.1 -0.9 -0.2 0.4 0.8 -0.3 1.2 0.9 : 0.8
Luxembourg 2.5 1.1 2.8 -3.9 -0.5 1.1 1.9 1.2 1.2 1.1 1.2 : 1.1
Netherlands 2.7 1.3 1.2 0.1 0.3 0.7 3.4 0.7 1.1 0.7 1.5 : 1.4
Austria 3.3 1.9 1.9 0.2 1.1 1.3 2.5 1.8 1.3 1.4 1.3 : 1.6
Portugal 4.7 2.3 2.1 0.3 0.1 -0.8 1.1 0.8 0.3 1.3 0.6 : 0.8
Finland 3.5 2.9 2.3 -0.5 1.3 2.4 3.3 2.6 0.5 2.1 2.8 : 2.4
Euro area 3.2 1.8 1.2 0.3 0.3 0.5 1.4 0.9 0.3 1.2 0.7 : 0.9
Czech Republic : : 2.9 2.2 0.0 4.6 4.4 4.1 4.3 4.2 4.0 : 3.9
Denmark 2.1 2.5 1.8 -0.1 0.6 1.9 2.0 1.8 2.1 1.7 1.8 : 1.7
Estonia : : 8.2 5.6 5.6 5.8 7.7 5.3 7.9 5.4 6.6 : 6.5
Cyprus : : 2.4 1.9 1.0 0.9 2.2 2.6 2.3 2.9 2.7 : 2.8
Latvia : -5.0 5.9 5.7 4.8 5.4 7.1 6.3 8.1 6.3 7.0 : 6.5
Lithuania : -8.2 5.4 10.8 2.6 8.0 7.1 5.9 5.3 5.4 5.5 : 5.2
Hungary : : 2.8 3.6 3.5 1.6 4.9 3.3 3.3 2.9 3.3 : 3.5
Malta : : 3.8 -1.8 1.4 -1.2 -1.0 1.1 0.2 1.1 -0.1 : 0.3
Poland : : 5.5 3.3 4.5 5.1 5.3 3.3 2.3 3.3 3.0 : 3.2
Slovenia : : 4.8 2.2 1.9 2.9 3.7 3.6 3.5 3.9 3.8 : 3.9
Slovakia : : 4.5 3.2 5.2 2.6 5.9 4.3 3.2 4.2 4.5 : 5.4
Sweden 2.2 3.0 2.5 -0.8 1.8 1.6 4.1 2.6 1.9 1.8 1.9 : 2.1
United Kingdom 2.1 2.5 2.0 1.4 1.2 1.6 2.2 2.3 1.0 2.3 1.9 : 2.2
EU-25 : : 1.7 0.9 0.8 0.9 1.8 1.3 0.6 1.5 1.1 : 1.4
EU-15 2.9 1.9 1.3 0.5 0.5 0.7 1.6 1.2 0.5 1.4 1.0 : 1.2
USA 1.6 1.4 2.0 0.7 1.9 1.8 3.1 2.5 1.8 2.1 1.9 : 2.1
Japan 5.1 0.8 1.3 0.8 1.1 1.7 2.5 1.0 2.2 1.7 2.0 : 1.8

TABLE 24 : Unit labour costs, whole economy ¹ (percentage change on preceding year, 1961-2007)
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 5.1 3.1 0.8 4.0 2.2 0.8 0.2 0.8 1.8 0.7 1.3 : 1.1
Germany 3.9 3.8 1.2 1.5 1.3 1.6 0.1 0.4 -0.5 0.6 -0.5 : 0.1
Greece 11.0 11.3 5.1 0.7 6.1 1.3 4.5 3.5 3.9 3.7 3.4 : 2.9
Spain 10.2 5.2 2.3 3.3 3.0 2.9 2.8 3.1 2.7 3.1 3.0 : 2.7
France 6.6 1.3 0.6 2.1 2.7 1.7 0.6 1.3 1.5 1.5 1.4 : 1.6
Ireland 8.2 1.6 1.5 4.2 0.8 3.1 4.1 1.9 4.3 1.2 1.9 : 1.6
Italy 9.8 3.1 1.7 3.1 3.4 3.9 2.4 2.2 3.3 1.6 1.6 : 1.9
Luxembourg 5.1 3.4 0.1 8.1 4.2 1.0 0.6 1.8 2.3 1.4 2.0 : 1.9
Netherlands 5.1 2.2 1.9 5.4 4.8 3.3 -0.1 0.0 0.3 -0.6 -0.5 : -0.1
Austria 4.4 3.0 0.1 1.1 1.0 0.6 -0.2 0.6 0.9 1.2 1.4 : 0.7
Portugal 11.8 8.1 5.1 -1.8 4.2 3.4 1.9 2.2 2.7 1.9 2.4 : 2.2
Finland 7.8 0.3 0.6 5.1 0.6 0.2 0.8 1.4 2.4 1.7 0.1 : 0.4
Euro area 6.4 3.3 1.2 2.3 2.5 2.1 0.9 1.3 1.5 1.2 1.3 : 1.4
Czech Republic : : 7.1 5.2 6.3 0.2 1.4 2.3 0.3 2.1 1.6 : 1.4
Denmark 7.5 0.6 1.9 4.5 3.1 1.6 1.1 1.5 1.1 1.8 1.7 : 2.0
Estonia : : 8.0 1.9 4.5 4.7 2.8 0.7 4.5 1.0 3.2 : 1.7
Cyprus : : 1.6 -0.8 3.1 8.3 1.9 1.9 2.1 1.0 1.3 : 1.2
Latvia : : 5.6 -2.2 -0.8 5.6 8.8 1.6 7.3 0.7 4.7 : 3.3
Lithuania : : 9.7 -6.5 -1.7 0.7 0.9 1.9 3.6 2.0 2.5 : 1.6
Hungary : : 11.9 11.9 8.9 7.9 3.1 3.5 2.1 3.2 1.8 : 0.9
Malta : : 0.8 7.0 1.3 2.4 1.6 0.3 1.3 0.5 2.3 : 1.3
Poland : : 11.5 9.5 -2.4 -4.1 -2.2 0.7 1.7 1.1 1.3 : 1.1
Slovenia : : 5.9 9.2 6.5 4.7 3.8 1.4 2.5 1.3 1.7 : 1.9
Slovakia : : 6.1 3.0 3.9 3.3 4.6 2.7 4.9 1.8 1.9 : 0.4
Sweden 7.1 1.7 2.2 5.4 1.1 1.3 -0.7 0.9 1.5 2.1 1.6 : 1.9
United Kingdom 8.2 2.4 2.6 3.6 2.4 3.2 2.0 2.3 3.1 2.7 2.6 : 2.3
EU-25 : : 1.8 2.9 2.3 2.1 1.1 1.5 1.8 1.6 1.5 : 1.6
EU-15 6.7 3.1 1.5 2.7 2.4 2.3 1.1 1.5 1.8 1.6 1.6 : 1.7
USA 4.6 2.0 2.2 1.7 1.6 2.3 1.6 2.2 3.1 2.4 2.4 : 2.3
Japan 4.8 1.2 -1.1 -1.3 -2.6 -2.2 -3.5 -1.0 -2.4 -1.7 -1.8 : -1.5

¹ Compensation of employees per head divided by labour productivity per head, defined as GDP in volume divided by total employment.

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TABLE 25 : Real unit labour costs ¹ (percentage change on preceding year, 1961-2007) 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 0.3 0.4 -0.4 2.2 0.4 -0.9 -2.1 -1.0 -0.8 -1.4 -1.0 : -0.7
Germany 0.0 0.5 1.0 0.3 -0.1 0.6 -0.6 -0.2 -1.2 -0.1 -0.9 : -0.4
Greece -1.1 -2.3 -0.1 -2.7 2.0 -2.1 0.8 0.3 0.2 0.3 0.2 : -0.2
Spain -0.1 -0.2 -0.6 -0.9 -1.4 -1.0 -1.2 -0.8 -1.5 -0.6 -0.7 : -0.2
France -0.1 -0.3 -0.3 0.3 0.5 0.1 -1.0 -0.4 0.1 -0.3 -0.4 : -0.3
Ireland -0.4 -1.2 -2.7 -1.4 -4.1 1.0 1.8 -0.7 1.0 -1.4 -0.6 : -1.0
Italy -0.1 -1.7 -1.1 0.4 0.4 1.0 -0.2 -0.1 0.9 -0.5 -0.6 : -0.3
Luxembourg 0.2 -0.1 -2.5 6.1 3.1 -1.0 -1.8 -1.3 0.7 -1.0 -0.3 : -0.6
Netherlands 0.2 0.0 -0.2 0.1 1.0 0.7 -0.9 -0.9 -0.6 -1.5 -1.4 : -1.7
Austria -0.2 0.0 -0.7 -0.6 -0.2 -0.8 -2.1 -1.0 -0.8 -0.3 0.0 : -0.6
Portugal -0.1 0.2 1.8 -5.1 0.2 0.7 -0.9 0.0 0.7 -0.4 0.1 : -0.3
Finland -0.2 -2.1 -1.0 1.9 -0.4 0.5 0.3 0.7 2.0 0.5 -0.4 : -0.5
Euro area -0.2 -0.2 -0.2 0.0 0.0 0.1 -0.9 -0.5 -0.3 -0.5 -0.4 : -0.2
Czech Republic : : 0.7 0.3 3.4 -2.3 -1.6 -1.4 -2.3 -1.1 -0.9 : -0.8
Denmark 0.0 -1.0 0.0 1.9 1.5 -0.6 -0.9 -0.2 -1.1 0.1 -0.3 : 0.1
Estonia : : -2.3 -3.5 0.1 2.6 -0.2 -2.7 -0.2 -1.9 0.0 : -1.1
Cyprus : : -1.0 -3.9 0.8 2.9 -0.8 -1.0 -0.3 -1.3 -0.9 : -0.9
Latvia : : -1.2 -4.2 -4.0 2.0 1.5 -2.4 1.0 -3.0 -2.1 : -2.6
Lithuania : : 1.7 -5.4 -1.9 1.8 -1.8 -1.1 0.3 -1.5 -1.6 : -2.4
Hungary : : -1.9 3.1 0.0 1.0 -2.8 -1.2 -1.2 -0.9 -0.9 : -2.0
Malta : : -1.0 5.1 -0.7 -2.1 -0.4 -2.2 -1.4 -0.8 -0.5 : -1.0
Poland : : 0.1 5.3 -3.7 -4.5 -5.0 -1.0 -0.6 -0.9 -0.8 : -1.3
Slovenia : : -1.6 0.4 -1.3 -1.0 0.6 -1.7 0.0 -1.3 -0.7 : -0.6
Slovakia : : -0.1 -1.1 -0.1 -1.3 0.0 -0.2 2.1 -0.8 -1.1 : -2.3
Sweden -0.1 -1.9 1.0 3.0 -0.6 -0.8 -1.5 -0.4 0.4 0.0 -0.3 : -0.3
United Kingdom 0.1 -1.0 0.1 1.3 -0.7 0.3 0.0 0.1 0.8 0.2 0.0 : -0.3
EU-25 : : -0.1 0.5 -0.2 -0.1 -0.8 -0.4 -0.1 -0.3 -0.3 : -0.3
EU-15 -0.2 -0.4 -0.1 0.4 -0.1 0.2 -0.7 -0.3 0.0 -0.3 -0.3 : -0.2
USA -0.1 -0.4 0.5 -0.7 -0.1 0.3 -1.0 -0.1 0.3 0.2 -0.5 : -0.1
Japan -0.4 0.3 -0.4 0.0 -1.4 -0.8 -2.3 -0.2 -1.4 -1.5 -1.6 : -2.4

¹ Nominal unit labour costs divided by GDP price deflator.

TABLE 26 : Total population (percentage change on preceding year, 1961-2007)

long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 0.3 0.3 0.2 0.3 0.5 0.4 0.4 0.3 0.3 0.2 0.2 : 0.2
Germany 0.4 0.7 0.1 0.2 0.2 0.0 0.0 0.0 0.0 0.1 0.0 : 0.0
Greece 0.7 0.9 0.5 0.3 0.3 0.3 0.2 0.2 0.3 0.2 0.3 : 0.3
Spain 0.8 0.2 0.5 1.1 1.5 0.6 1.6 0.6 1.5 0.6 1.4 : 1.4
France 0.7 0.4 0.4 0.5 0.5 0.5 0.4 0.3 0.5 0.3 0.5 : 0.5
Ireland 0.7 0.5 1.1 1.5 1.7 1.6 1.7 1.5 2.1 1.5 1.8 : 1.6
Italy 0.4 0.0 0.0 0.1 0.3 0.8 1.0 0.4 0.6 0.1 0.1 : 0.1
Luxembourg 0.7 1.4 1.4 0.7 1.1 0.9 0.8 0.9 0.7 0.9 0.6 : 0.6
Netherlands 0.9 0.7 0.6 0.8 0.6 0.5 0.3 0.2 0.3 0.2 0.2 : 0.2
Austria 0.3 0.7 0.2 0.4 0.5 0.4 0.7 0.4 0.6 0.4 0.5 : 0.4
Portugal 0.4 0.2 0.4 0.7 0.7 0.7 0.6 0.5 0.6 0.5 0.6 : 0.6
Finland 0.4 0.5 0.3 0.2 0.3 0.2 0.3 0.2 0.2 0.2 0.2 : 0.2
Euro area 0.6 0.4 0.3 0.4 0.5 0.5 0.6 0.3 0.5 0.3 0.4 : 0.4
Czech Republic 0.2 -0.1 -0.1 -0.5 -0.2 0.0 0.0 0.2 0.1 0.1 0.1 : 0.1
Denmark 0.4 0.3 0.4 0.4 0.4 0.0 0.5 0.2 0.2 0.1 0.1 : 0.1
Estonia 0.9 -1.7 -1.0 -0.4 -0.4 -0.4 -0.3 -0.4 -0.3 -0.4 -0.3 : -0.3
Cyprus : 2.3 1.3 1.1 1.3 1.8 2.4 1.1 1.1 1.1 1.1 : 1.1
Latvia 0.8 -1.4 -0.9 -0.8 -0.7 -0.6 0.0 -0.2 -0.2 -0.2 -0.2 : -0.2
Lithuania 1.0 -0.4 -0.7 -0.5 -0.3 -0.4 -0.5 -0.3 -0.5 -0.2 -0.2 : -0.1
Hungary 0.1 -0.1 -0.2 -0.2 -0.3 -0.3 -0.2 -0.2 -0.2 -0.2 -0.2 : -0.2
Malta 0.3 1.0 0.6 0.8 0.7 0.6 0.8 0.5 0.5 0.5 0.5 : 0.5
Poland 0.9 0.2 -0.2 0.0 0.0 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 : -0.1
Slovenia 0.8 -0.1 0.0 0.1 0.2 0.1 0.0 0.0 0.0 0.0 0.0 : 0.0
Slovakia 0.9 0.3 0.1 0.0 -0.2 -0.2 0.1 0.0 0.0 0.0 0.1 : 0.1
Sweden 0.5 0.6 0.1 0.3 0.3 0.4 0.4 0.5 0.4 0.5 0.4 : 0.4
United Kingdom 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.2 0.6 0.1 0.5 : 0.5
EU-25 0.5 0.3 0.2 0.3 0.4 0.3 0.5 0.2 0.4 0.2 0.3 : 0.3
EU-15 0.5 0.4 0.3 0.4 0.5 0.4 0.6 0.3 0.5 0.2 0.4 : 0.4
USA 1.1 1.3 1.2 1.0 1.0 1.0 1.0 1.0 0.9 1.0 1.0 : 1.0
Japan 0.9 0.3 0.2 0.3 0.1 0.1 0.1 0.0 0.0 0.0 0.0 : 0.0

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TABLE 27 : Total employment (percentage change on preceding year, 1961-2007) 07.11.2005

long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 0.3 0.0 1.3 1.5 -0.3 0.1 0.7 0.8 0.7 0.8 0.6 : 0.7
Germany 0.5 0.0 0.8 0.4 -0.6 -1.0 0.4 0.7 0.3 0.8 0.5 : 0.4
Greece 0.3 0.6 0.6 -0.3 0.1 1.3 2.9 0.6 1.2 0.7 1.3 : 1.3
Spain 0.3 -0.4 3.8 3.2 2.4 2.5 2.6 2.1 3.0 2.0 2.4 : 2.2
France 0.4 -0.4 1.2 1.9 0.9 0.1 -0.1 0.5 0.1 0.8 0.5 : 0.9
Ireland 0.2 1.7 5.7 3.0 1.8 2.0 3.1 1.8 3.8 1.5 2.2 : 2.0
Italy 0.4 -0.8 0.8 1.6 1.3 0.4 0.8 0.4 0.5 0.5 0.6 : 0.6
Luxembourg 1.2 2.8 4.2 5.7 3.0 1.8 2.6 2.6 3.0 2.9 3.2 : 3.4
Netherlands 0.7 0.8 2.6 1.3 -0.3 -0.9 -1.6 0.3 -0.6 1.3 0.5 : 1.0
Austria 0.2 0.2 1.0 0.6 -0.1 0.1 0.0 0.2 0.4 0.7 0.6 : 0.6
Portugal 0.1 -0.6 1.9 1.7 0.4 -0.4 0.1 0.3 0.1 0.3 0.2 : 0.4
Finland 0.4 -3.7 2.3 1.5 0.9 0.0 0.3 0.6 1.3 0.8 0.7 : 0.7
Euro area 0.4 -0.2 1.6 1.5 0.7 0.3 0.7 0.7 1.0 0.9 1.2 : 1.1
Czech Republic : : -1.4 0.4 1.5 -1.4 0.1 -0.1 0.5 0.0 0.4 : 0.3
Denmark 0.6 -0.1 1.0 0.8 -0.2 -1.2 0.0 0.5 0.6 0.4 0.5 : 0.4
Estonia : -5.3 -2.4 0.8 1.6 0.8 0.1 0.6 0.4 0.8 0.6 : 0.8
Cyprus : : 1.3 2.2 1.1 1.1 1.5 1.2 1.5 1.2 1.3 : 1.3
Latvia : -7.2 -0.5 2.2 1.6 1.7 1.1 0.8 0.9 0.6 0.7 : 0.6
Lithuania : -2.4 -1.1 -3.3 4.0 2.3 -0.1 0.5 1.6 0.4 0.7 : 0.6
Hungary : : 1.2 0.3 0.0 1.3 -0.7 0.5 0.4 0.9 0.6 : 0.3
Malta : 1.5 0.8 2.1 -0.7 -0.7 1.4 0.6 0.6 0.8 0.8 : 0.8
Poland : : -0.4 -2.2 -3.0 -1.2 0.0 1.0 1.0 1.2 1.2 : 1.2
Slovenia : : -0.4 0.5 1.5 -0.2 0.4 0.1 0.3 0.2 0.2 : 0.3
Slovakia : : -0.8 0.6 -0.5 1.8 -0.3 0.6 1.8 0.9 0.9 : 0.8
Sweden 0.7 -2.1 0.8 1.9 0.2 -0.2 -0.5 0.5 0.5 1.0 1.1 : 0.7
United Kingdom 0.4 -0.8 1.3 0.8 0.8 1.0 1.0 0.4 0.6 0.5 0.4 : 0.6
EU-25 : : 1.2 1.0 0.4 0.2 0.6 0.7 0.9 0.8 1.0 : 1.0
EU-15 0.4 -0.3 1.5 1.4 0.7 0.3 0.7 0.7 0.9 0.8 1.0 : 1.0
USA 1.9 1.0 2.1 0.0 -0.3 0.9 1.1 1.1 1.7 0.8 1.2 : 0.6
Japan 1.0 0.8 0.0 -0.6 -1.4 -0.3 0.2 0.1 0.3 0.0 0.2 : 0.0

TABLE 28 : Number of unemployed (as a percentage of civilian labour force, 1964-2007) ¹

long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1964-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 5.7 8.3 8.7 6.7 7.3 8.0 7.9 7.7 8.0 7.5 7.9 : 7.8
Germany 3.2 7.2 8.3 7.4 8.2 9.0 9.5 9.7 9.5 9.3 9.3 : 9.1
Greece 4.5 8.3 10.7 10.8 10.3 9.7 10.5 10.5 10.4 10.3 10.0 : 9.7
Spain 6.8 17.1 15.0 10.8 11.5 11.5 11.0 10.4 9.2 10.3 8.5 : 8.1
France 5.3 10.6 10.8 8.4 8.9 9.5 9.6 9.4 9.6 9.1 9.3 : 8.9
Ireland 9.7 14.5 7.8 3.8 4.3 4.6 4.5 4.6 4.3 4.6 4.4 : 4.5
Italy 6.7 9.8 11.0 9.1 8.6 8.4 8.0 7.9 7.7 7.7 7.6 : 7.5
Luxembourg 1.1 2.5 2.6 2.1 2.8 3.7 4.8 4.6 5.3 4.3 5.6 : 5.8
Netherlands 4.9 6.1 4.1 2.2 2.8 3.7 4.6 5.2 5.1 5.0 4.9 : 4.2
Austria 2.1 3.7 4.1 3.6 4.2 4.3 4.8 4.1 5.0 3.9 5.0 : 5.1
Portugal 5.2 5.7 5.6 4.0 5.0 6.3 6.7 7.0 7.4 7.0 7.7 : 7.8
Finland 3.9 13.3 11.7 9.1 9.1 9.0 8.8 8.4 8.4 8.0 7.8 : 7.2
Euro area 5.1 9.5 9.8 7.9 8.3 8.7 8.9 8.8 8.6 8.5 8.4 : 8.1
Czech Republic : : 6.4 8.0 7.3 7.8 8.3 8.3 7.9 8.2 7.5 : 7.4
Denmark 4.1 8.1 5.1 4.3 4.6 5.6 5.4 4.9 4.6 4.6 4.2 : 4.0
Estonia : 5.8 10.5 11.8 9.5 10.2 9.2 8.7 7.2 8.2 6.0 : 5.4
Cyprus : : 5.0 4.4 3.9 4.5 5.2 4.8 4.9 4.6 4.8 : 4.6
Latvia : 9.8 15.6 12.9 12.6 10.4 9.8 9.4 9.7 9.2 9.4 : 9.3
Lithuania : 9.1 13.9 16.4 13.5 12.7 10.9 10.2 9.0 9.7 8.1 : 7.5
Hungary : : 8.0 5.6 5.6 5.8 6.0 6.3 7.0 6.2 6.9 : 6.7
Malta : 5.0 6.4 7.6 7.7 8.0 7.6 7.1 7.2 7.0 7.1 : 7.1
Poland : : 12.6 18.5 19.8 19.2 18.8 18.3 17.8 17.6 16.8 : 15.5
Slovenia : : 7.0 5.8 6.1 6.5 6.0 5.9 5.8 5.6 5.7 : 5.6
Slovakia : : 14.5 19.4 18.7 17.5 18.2 17.6 16.7 16.8 16.2 : 15.8
Sweden 2.2 7.2 8.0 4.9 4.9 5.6 6.3 5.9 6.8 5.3 5.9 : 5.6
United Kingdom 5.4 9.3 6.4 5.0 5.1 4.9 4.7 4.7 4.6 4.7 4.9 : 4.7
EU-25 : : 9.5 8.4 8.7 9.0 9.0 9.0 8.7 8.7 8.5 : 8.1
EU-15 5.1 9.3 9.0 7.2 7.6 7.9 8.1 8.0 7.9 7.8 7.7 : 7.4
USA 6.1 6.5 4.6 4.8 5.8 6.0 5.5 5.2 5.1 5.0 5.0 : 5.3
Japan 1.9 2.6 4.1 5.0 5.4 5.3 4.7 4.4 4.5 4.1 4.2 : 4.2

¹ Series following Eurostat definition, based on the labour force survey.

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TABLE 29 : Nominal bilateral exchange rates against Ecu/euro (1970-2007) 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1970-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 44.45 40.50 40.23 40.34 : : : : : : : : :
Germany 2.64 1.96 1.95 1.96 : : : : : : : : :
Greece 80.44 266.37 321.61 340.75 : : : : : : : : :
Spain 102.29 146.41 165.32 166.39 : : : : : : : : :
France 6.17 6.71 6.57 6.56 : : : : : : : : :
Ireland 0.64 0.79 0.78 0.79 : : : : : : : : :
Italy 1137.90 1803.04 1940.89 1936.27 : : : : : : : : :
Luxembourg 44.45 40.50 40.23 40.34 : : : : : : : : :
Netherlands 2.83 2.20 2.20 2.20 : : : : : : : : :
Austria 18.83 13.80 13.73 13.76 : : : : : : : : :
Portugal 84.58 186.94 199.40 200.48 : : : : : : : : :
Finland 4.77 5.88 5.92 5.95 : : : : : : : : :
Euro area : : : : : : : : : : : : :
Czech Republic : 34.89 35.78 34.07 30.80 31.85 31.89 30.19 29.88 30.67 29.83 : 30.03
Denmark 7.65 7.64 7.45 7.45 7.43 7.43 7.44 7.46 7.45 7.46 7.46 : 7.46
Estonia : : 15.61 15.65 15.65 15.65 15.65 15.65 15.65 15.65 15.65 : 15.65
Cyprus 0.48 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.59 : 0.59
Latvia : : 0.64 0.56 0.58 0.64 0.67 0.69 0.70 0.69 0.70 : 0.70
Lithuania : : 4.41 3.58 3.46 3.45 3.45 3.45 3.45 3.45 3.45 : 3.45
Hungary : 142.43 231.76 256.59 242.96 253.62 251.66 244.11 248.09 244.11 252.84 : 256.16
Malta 0.43 0.43 0.43 0.40 0.41 0.43 0.43 0.43 0.43 0.43 0.43 : 0.43
Poland : 2.60 3.86 3.67 3.86 4.40 4.53 4.02 4.03 4.08 3.95 : 3.98
Slovenia : 116.46 187.96 217.98 225.98 233.85 239.09 239.74 239.57 239.74 239.64 : 239.64
Slovakia : : 40.66 43.30 42.69 41.49 40.02 38.29 38.71 38.66 39.41 : 40.07
Sweden 6.05 8.53 8.67 9.26 9.16 9.12 9.12 9.06 9.28 9.06 9.50 : 9.53
United Kingdom 0.59 0.76 0.69 0.62 0.63 0.69 0.68 0.69 0.68 0.70 0.68 : 0.69
EU-25 : : : : : : : : : : : : :
EU-15 : : : : : : : : : : : : :
USA 1.11 1.24 1.10 0.90 0.95 1.13 1.24 1.31 1.25 1.32 1.21 : 1.22
Japan 262.44 141.04 128.47 108.68 118.06 130.97 134.44 135.40 136.72 132.32 137.33 : 135.71

TABLE 30 : Nominal effective exchange rates to rest of a group ¹ of industrialised countries (percentage change on preceding year, 1970-2007)
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1970-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium : : -1.6 1.2 1.2 4.5 1.1 0.6 -0.2 0.1 -0.4 : 0.3
Germany : : -1.5 1.3 1.7 5.9 1.7 0.5 -0.5 0.2 -0.5 : 0.4
Greece : : 0.3 3.1 2.5 5.0 1.4 0.3 -0.7 0.5 -0.2 : 0.5
Spain : : -1.1 1.4 1.4 4.4 1.1 0.6 -0.3 0.2 -0.4 : 0.3
France : : -1.1 1.3 1.7 5.3 1.4 0.7 -0.2 0.1 -0.4 : 0.3
Ireland : : -1.5 1.0 2.0 7.3 2.3 1.6 0.0 0.1 -0.8 : 0.4
Italy : : 1.9 1.7 2.1 5.7 1.7 0.6 -0.5 0.2 -0.5 : 0.4
Luxembourg : : -1.6 1.2 1.2 4.5 1.1 0.6 -0.2 0.1 -0.4 : 0.3
Netherlands : : -1.5 1.1 1.1 3.9 0.9 0.5 -0.2 0.1 -0.3 : 0.3
Austria : : -0.4 0.8 1.0 3.7 1.0 0.1 -0.6 0.2 -0.2 : 0.3
Portugal : : -1.1 0.7 0.9 3.5 0.8 0.6 -0.1 0.1 -0.3 : 0.2
Finland : : -1.8 2.0 1.6 5.4 1.6 0.6 -0.3 0.1 -0.4 : 0.3
Euro area : : -1.3 2.9 3.2 10.8 2.9 0.9 -1.0 0.4 -0.8 : 0.7
Czech Republic : : 0.4 5.2 11.6 -0.3 0.4 5.3 6.0 -1.4 0.0 : -0.4
Denmark : : -1.3 1.7 1.4 4.7 1.4 0.2 -0.5 0.0 -0.5 : 0.2
Estonia : : -0.8 1.7 0.6 3.2 0.9 0.2 -0.1 0.1 0.0 : 0.2
Cyprus : : 6.8 2.2 1.9 4.2 0.9 0.3 0.5 0.2 -1.7 : 0.4
Latvia : : 4.2 1.0 -3.0 -5.9 -2.7 -2.9 -4.5 0.6 -1.3 : 0.4
Lithuania : : 8.7 4.6 5.1 5.0 1.1 0.1 -0.3 0.2 -0.2 : 0.2
Hungary : : -7.8 2.4 6.9 -1.2 1.8 3.2 0.8 0.3 -2.1 : -1.0
Malta : : -0.1 0.7 1.1 3.1 2.1 0.6 -0.5 -0.2 -0.5 : 0.3
Poland : : -4.2 10.3 -4.3 -10.1 -2.2 12.9 12.0 -1.3 1.9 : -0.6
Slovenia : : -4.9 -4.3 -2.7 -0.6 -1.4 -0.5 -0.9 0.2 -0.2 : 0.3
Slovakia : : -0.7 -1.6 1.5 5.8 4.6 4.0 2.3 -0.7 -2.0 : -1.4
Sweden : : 1.1 -7.7 2.4 6.2 2.0 1.6 -2.3 0.0 -3.0 : -0.2
United Kingdom : : 5.4 -1.0 0.9 -3.9 4.5 -1.1 -1.1 -0.4 -0.7 : -0.7
EU-25 : : 1.2 3.8 5.8 12.6 6.1 2.4 -0.8 0.2 -1.7 : 0.5
EU-15 : : 1.0 2.1 4.1 11.2 5.0 0.5 -1.9 0.3 -1.4 : 0.6
USA : : 5.2 5.5 -0.9 -9.0 -6.8 -4.5 -2.2 -0.3 1.5 : -0.4
Japan : : 0.7 -9.1 -5.1 -0.3 1.6 1.8 -2.1 2.7 -2.1 : 1.8

¹ 35 countries : EUR24 (excl. LU), BG, RO, TR, CH, NR, US, CA, JP, AU, MX and NZ.

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TABLE 31 : Relative unit labour costs, to rest of a group ¹ of industrialised countries (nat. curr.) (percentage change on preceding year, 19607.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1963-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium : : -1.2 0.9 0.0 -1.2 -0.5 -0.7 0.2 -0.7 0.1 : :
Germany : : -3.0 -2.8 -1.6 -1.2 -1.8 -1.4 -2.7 -1.0 -2.3 : :
Greece : : -0.7 -4.8 3.0 -1.7 2.9 1.2 1.4 1.8 1.5 : :
Spain : : -0.2 0.2 0.5 0.7 1.8 1.4 0.8 1.5 1.6 : :
France : : -1.8 -1.1 0.5 -0.4 -0.4 -0.4 -0.5 0.0 -0.1 : :
Ireland : : -0.5 1.4 -1.0 1.2 3.2 0.2 2.3 -0.4 0.3 : :
Italy : : -1.4 -0.4 1.1 1.9 1.5 0.4 1.3 0.0 0.0 : :
Luxembourg : : -1.2 0.9 0.0 -1.2 -0.5 -0.7 0.2 -0.7 0.1 : :
Netherlands : : -0.1 2.5 2.8 1.4 -0.8 -1.5 -1.4 -2.1 -1.7 : :
Austria : : -2.9 -2.2 -1.3 -1.3 -0.7 -1.0 -0.5 -0.2 0.4 : :
Portugal : : 3.3 -4.6 2.0 1.3 0.7 0.5 0.8 0.2 0.7 : :
Finland : : -2.1 1.7 -1.3 -1.6 0.1 0.0 0.7 0.2 -1.3 : :
Euro area : : -4.2 -2.3 -0.1 -0.4 -0.6 -1.2 -1.5 -1.0 -1.6 : :
Czech Republic : : 4.3 2.2 4.2 2.9 0.7 1.0 -1.1 0.9 0.6 : :
Denmark : : -0.2 1.4 1.3 -0.1 0.6 0.1 -0.4 0.4 0.5 : :
Estonia : : 4.3 -1.5 3.0 3.0 1.9 -0.7 2.5 -0.5 1.9 : :
Cyprus : : -8.2 -4.5 0.3 6.2 0.8 0.1 0.0 -0.7 -0.4 : :
Latvia : : 1.6 -5.0 -2.5 3.7 7.9 0.1 5.3 -0.9 3.2 : :
Lithuania : : 4.8 -9.9 -3.7 -1.7 -0.2 0.1 1.2 0.6 0.7 : :
Hungary : : 8.1 8.7 6.6 5.3 2.5 2.1 0.5 1.8 0.5 : :
Malta : : -1.1 4.8 -0.3 0.9 1.1 -1.1 -0.3 -0.8 1.0 : :
Poland : : 8.7 6.4 -4.6 -6.1 -3.0 -0.7 0.3 -0.3 0.2 : :
Slovenia : : 2.9 5.5 4.1 2.6 3.0 -0.2 0.8 -0.1 0.5 : :
Slovakia : : 2.0 -0.5 1.5 1.2 4.1 1.3 3.6 0.5 0.9 : :
Sweden : : -0.4 2.1 -0.9 -0.5 -1.6 -0.6 -0.2 0.6 0.1 : :
United Kingdom : : 0.4 0.6 0.4 1.4 1.2 0.8 1.2 1.3 1.2 : :
EU-25 : : -5.1 -1.8 0.1 -0.1 -0.3 -1.3 -1.4 -0.5 -1.4 : :
EU-15 : : -4.9 -2.2 -0.1 0.0 -0.4 -1.1 -1.3 -0.5 -1.3 : :
USA : : -0.6 -1.2 -0.9 -0.4 0.9 0.8 1.7 1.4 1.3 : :
Japan : : -3.4 -3.8 -4.3 -3.8 -4.8 -2.8 -4.8 -3.5 -3.7 : :

¹ 35 countries : EUR24 (excl. LU), BG, RO, TR, CH, NR, US, CA, JP, AU, MX and NZ.

TABLE 32 : Real effective exchange rate : ulc relative to rest of a group ¹ of industrialised countries (usd) (% change on preceding year, 1963-2007)
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1963-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium : : -2.8 2.1 1.2 3.2 0.6 0.0 0.0 -0.6 -0.3 : :
Germany : : -4.4 -1.5 0.2 4.6 -0.1 -0.9 -3.2 -0.9 -2.8 : :
Greece : : -0.5 -1.9 5.5 3.2 4.3 1.6 0.6 2.2 1.3 : :
Spain : : -1.3 1.7 1.9 5.1 2.9 2.0 0.5 1.7 1.2 : :
France : : -2.9 0.2 2.3 4.8 1.0 0.3 -0.7 0.1 -0.6 : :
Ireland : : -2.0 2.4 0.9 8.5 5.6 1.9 2.3 -0.3 -0.5 : :
Italy : : 0.5 1.2 3.2 7.7 3.2 1.0 0.8 0.2 -0.5 : :
Luxembourg : : -2.8 2.1 1.2 3.2 0.6 0.0 0.0 -0.6 -0.3 : :
Netherlands : : -1.6 3.6 3.9 5.4 0.1 -1.0 -1.6 -2.0 -2.0 : :
Austria : : -3.3 -1.3 -0.3 2.3 0.3 -0.9 -1.1 0.0 0.1 : :
Portugal : : 2.2 -3.9 2.9 4.8 1.6 1.1 0.7 0.3 0.4 : :
Finland : : -3.9 3.8 0.2 3.7 1.7 0.5 0.4 0.3 -1.7 : :
Euro area : : -5.5 0.6 3.1 10.4 2.2 -0.3 -2.5 -0.6 -2.4 : :
Czech Republic : : 4.7 7.5 16.3 2.6 1.1 6.4 4.9 -0.5 0.6 : :
Denmark : : -1.5 3.2 2.7 4.5 2.0 0.4 -0.9 0.4 0.0 : :
Estonia : : 3.4 0.1 3.6 6.3 2.8 -0.5 2.4 -0.4 1.9 : :
Cyprus : : -1.9 -2.4 2.2 10.7 1.6 0.4 0.5 -0.5 -2.1 : :
Latvia : : 5.9 -4.1 -5.4 -2.4 5.0 -2.8 0.5 -0.4 1.9 : :
Lithuania : : 13.9 -5.7 1.2 3.2 1.0 0.2 0.9 0.7 0.5 : :
Hungary : : -0.3 11.3 13.9 4.0 4.4 5.3 1.3 2.1 -1.6 : :
Malta : : -1.2 5.5 0.8 4.1 3.3 -0.5 -0.7 -1.0 0.5 : :
Poland : : 4.1 17.4 -8.7 -15.6 -5.1 12.1 12.3 -1.6 2.1 : :
Slovenia : : -2.1 1.0 1.3 2.0 1.6 -0.7 -0.1 0.1 0.2 : :
Slovakia : : 1.3 -2.1 3.1 7.1 8.9 5.3 6.0 -0.2 -1.1 : :
Sweden : : 0.7 -5.8 1.6 5.7 0.4 1.0 -2.5 0.6 -2.9 : :
United Kingdom : : 5.8 -0.4 1.4 -2.6 5.7 -0.3 0.1 0.9 0.5 : :
EU-25 : : -4.0 1.9 6.0 12.5 5.8 1.1 -2.2 -0.3 -3.1 : :
EU-15 : : -4.0 -0.2 4.1 11.1 4.5 -0.6 -3.2 -0.2 -2.7 : :
USA : : 4.5 4.3 -1.8 -9.4 -6.0 -3.8 -0.5 1.1 2.8 : :
Japan : : -2.7 -12.5 -9.2 -4.2 -3.3 -1.1 -6.8 -1.0 -5.7 : :

¹ 35 countries : EUR24 (excl. LU), BG, RO, TR, CH, NR, US, CA, JP, AU, MX and NZ.

136
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TABLE 33 : Short term interest rates (1961-2005) 07.11.2005
long-term
average 5-year average
1961-90 1991-95 1996-00 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Belgium 7.9 7.4 3.5 3.2 3.4 3.5 3.0 4.4 4.3 3.3 2.3 2.1 2.2
Germany 6.2 7.1 3.5 3.3 3.3 3.5 3.0 4.4 4.3 3.3 2.3 2.1 2.2
Greece : 22.1 11.7 13.8 12.8 14.0 10.1 7.7 4.3 3.3 2.3 2.1 2.2
Spain : 11.1 4.9 7.5 5.4 4.3 3.0 4.4 4.3 3.3 2.3 2.1 2.2
France 8.3 8.2 3.7 3.9 3.5 3.6 3.0 4.4 4.3 3.3 2.3 2.1 2.2
Ireland : 8.8 4.9 5.4 6.1 5.5 3.0 4.4 4.3 3.3 2.3 2.1 2.2
Italy 10.0 11.0 5.5 8.7 6.8 4.9 3.0 4.4 4.3 3.3 2.3 2.1 2.2
Luxembourg 7.9 7.4 3.5 3.2 3.4 3.5 3.0 4.4 4.3 3.3 2.3 2.1 2.2
Netherlands 5.9 7.0 3.4 3.0 3.3 3.4 3.0 4.4 4.3 3.3 2.3 2.1 2.2
Austria : 7.0 3.6 3.3 3.5 3.6 3.0 4.4 4.3 3.3 2.3 2.1 2.2
Portugal : 13.6 5.0 7.4 5.7 4.3 3.0 4.4 4.3 3.3 2.3 2.1 2.2
Finland : 9.0 3.6 3.6 3.2 3.6 3.0 4.4 4.3 3.3 2.3 2.1 2.2
Euro area 8.0 9.0 4.3 5.2 4.5 4.2 3.1 4.5 4.3 3.3 2.3 2.1 2.2
Czech Republic : : 10.9 12.0 16.0 14.3 6.9 5.4 5.2 3.5 2.3 2.4 1.9
Denmark 9.7 9.0 4.1 4.0 3.7 4.3 3.4 5.0 4.7 3.5 2.4 2.2 2.2
Estonia : : 8.8 8.1 8.6 13.9 7.8 5.7 5.3 3.9 2.9 2.5 2.4
Cyprus : : : : : : 6.3 6.4 5.9 4.4 3.9 4.7 4.4
Latvia : : : : 6.0 8.4 8.4 5.4 6.9 4.4 3.8 4.2 3.1
Lithuania : : : : : : 13.9 8.6 5.9 3.7 2.8 2.7 2.4
Hungary : : 17.8 24.3 20.4 17.9 15.1 11.4 10.9 9.2 8.5 11.5 7.0
Malta : : 5.1 5.0 5.1 5.4 5.2 4.9 4.9 4.0 3.3 2.9 3.2
Poland : : 19.8 21.4 23.7 20.4 14.7 18.8 16.1 9.0 5.7 6.2 5.2
Slovenia : : : : : 10.3 8.6 10.9 10.9 8.0 6.8 4.7 4.1
Slovakia : : 15.8 11.9 21.8 21.1 15.7 8.6 7.8 7.8 6.2 4.7 2.9
Sweden : 10.1 4.4 6.0 4.4 4.4 3.3 4.1 4.1 4.3 3.2 2.3 1.9
United Kingdom 9.7 7.9 6.4 6.1 6.9 7.4 5.6 6.2 5.0 4.1 3.7 4.6 4.8
EU-25 : : : : : : : : : : : : :
EU-15 8.4 8.9 4.6 5.4 4.9 4.7 3.5 4.7 4.4 3.5 2.6 2.5 2.6
USA 6.6 4.6 5.7 5.5 5.7 5.5 5.4 6.5 3.8 1.8 1.2 1.6 3.6
Japan : 3.6 0.5 0.6 0.6 0.8 0.2 0.3 0.2 0.1 0.1 0.1 0.1

TABLE 34 : Long term interest rates (1961-2005)

long-term
average 5-year average
1961-90 1991-95 1996-00 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Belgium 8.5 8.1 5.5 6.5 5.8 4.8 4.8 5.6 5.1 5.0 4.2 4.2 3.4
Germany 7.5 7.3 5.2 6.2 5.6 4.6 4.5 5.3 4.8 4.8 4.1 4.0 3.3
Greece : : 9.1 14.5 9.9 8.5 6.3 6.1 5.3 5.1 4.3 4.3 3.6
Spain : 11.1 6.0 8.7 6.4 4.8 4.7 5.5 5.1 5.0 4.1 4.1 3.4
France 9.4 7.8 5.3 6.3 5.6 4.6 4.6 5.4 4.9 4.9 4.1 4.1 3.4
Ireland : 8.4 5.7 7.3 6.3 4.8 4.7 5.5 5.0 5.0 4.1 4.1 3.3
Italy 11.0 12.1 6.3 9.4 6.9 4.9 4.7 5.6 5.2 5.0 4.3 4.3 3.5
Luxembourg : 7.5 5.4 6.3 5.6 4.7 4.7 5.5 4.9 4.7 4.0 4.2 3.3
Netherlands 7.5 7.4 5.3 6.2 5.6 4.6 4.6 5.4 5.0 4.9 4.1 4.1 3.4
Austria : 7.5 5.4 6.3 5.7 4.7 4.7 5.6 5.1 5.0 4.2 4.2 3.4
Portugal : 12.3 6.0 8.6 6.4 4.9 4.8 5.6 5.2 5.0 4.2 4.1 3.4
Finland 9.9 10.1 5.6 7.1 6.0 4.8 4.7 5.5 5.0 5.0 4.1 4.1 3.3
Euro area 9.1 9.1 5.7 7.4 6.1 4.8 4.7 5.4 5.0 4.9 4.1 4.1 3.3
Czech Republic : : : : : : : 6.9 6.3 4.9 4.1 4.8 3.5
Denmark 12.0 8.3 5.8 7.2 6.3 4.9 4.9 5.6 5.1 5.1 4.3 4.3 3.4
Estonia : : : : : 13.2 11.4 10.5 10.2 8.4 5.3 4.4 4.0
Cyprus : : : : 6.9 6.7 7.4 7.6 7.6 5.7 4.7 5.8 5.2
Latvia : : : : : : : : 7.6 5.4 4.9 4.9 3.9
Lithuania : : : : : : : : 8.2 6.1 5.3 4.5 3.7
Hungary : : : : : : 9.9 8.6 8.0 7.1 6.8 8.2 6.4
Malta : : : : : : : 5.8 6.2 5.8 5.0 4.7 4.6
Poland : : : : : : 9.5 11.8 10.7 7.4 5.8 6.9 5.2
Slovenia : : : : : : : : : : 6.4 4.7 3.8
Slovakia : : : : : : : 8.3 8.0 6.9 5.0 5.0 3.5
Sweden 9.1 9.8 6.0 8.0 6.6 5.0 5.0 5.4 5.1 5.3 4.6 4.4 3.4
United Kingdom 10.2 8.6 6.2 7.9 7.1 5.6 5.0 5.3 5.0 4.9 4.6 4.9 4.5
EU-25 : : : : : : : : : : : : :
EU-15 9.3 9.1 5.8 7.5 6.3 4.9 4.7 5.4 5.0 4.9 4.2 4.3 3.6
USA 7.4 7.0 6.0 6.5 6.5 5.3 5.6 6.0 5.0 4.6 4.0 4.3 4.3
Japan : 4.7 2.0 3.0 2.2 1.3 1.8 1.8 1.3 1.3 1.0 1.5 1.4

137
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TABLE 35 : Total expenditure, general government (as a percentage of GDP, 1970-2007) ¹ 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1970-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 51.4 53.1 51.4 49.9 51.0 52.0 50.2 49.3 49.8 49.0 49.3 : 48.8
Germany 44.8 47.3 48.5 48.2 48.8 49.1 47.5 47.0 47.6 46.2 47.0 : 46.3
Greece 33.2 47.6 50.1 50.2 49.6 49.8 49.9 48.8 47.4 48.7 45.4 : 43.4
Spain 31.0 44.6 41.0 38.9 39.0 38.6 39.0 40.4 38.8 40.4 39.1 : 39.6
France 44.5 52.5 53.8 52.3 53.2 53.9 54.0 54.5 54.2 54.4 54.2 : 53.9
Ireland 42.1 39.3 35.6 33.8 33.8 34.0 34.2 35.1 35.8 34.6 35.0 : 34.4
Italy 44.1 54.6 49.9 49.2 48.3 49.3 48.6 48.2 49.2 48.5 48.8 : 48.9
Luxembourg : : 42.3 38.7 43.7 45.0 45.6 46.0 46.3 46.0 46.1 : 45.9
Netherlands 49.3 51.0 46.2 46.1 46.9 47.6 47.1 47.9 48.8 49.2 49.5 : 49.5
Austria 45.2 52.3 53.8 51.3 51.1 51.0 50.4 50.1 50.0 49.2 49.4 : 48.7
Portugal 31.1 40.3 43.4 44.8 44.6 46.1 46.5 47.4 47.7 47.8 47.8 : 48.0
Finland 38.9 58.3 54.1 49.2 50.0 51.2 51.5 50.3 51.8 49.8 51.2 : 50.7
Euro area 43.7 50.1 49.2 48.1 48.4 48.8 48.2 48.2 48.3 48.0 48.0 : 47.7
Czech Republic : : 42.8 45.0 46.9 53.5 44.7 46.3 45.0 45.1 45.2 : 44.7
Denmark 49.4 58.5 56.6 54.7 55.2 55.2 55.1 54.3 54.6 53.5 54.1 : 53.6
Estonia : : 40.7 37.6 37.7 37.4 37.0 40.0 39.6 38.7 40.8 : 38.8
Cyprus : : : 38.9 40.6 45.4 44.1 42.3 44.1 40.7 43.3 : 42.9
Latvia : : 39.2 36.2 36.1 35.0 36.1 37.0 36.4 36.8 36.8 : 36.8
Lithuania : : 40.9 35.1 34.4 33.4 33.5 34.8 34.8 33.6 34.0 : 32.7
Hungary : : : 48.5 52.6 50.4 49.9 47.8 49.5 47.1 48.3 : 47.6
Malta : : : 44.5 45.8 50.4 48.3 52.6 50.7 51.4 49.2 : 47.8
Poland : : 48.1 44.7 45.6 45.8 44.7 48.6 45.0 48.0 45.0 : 44.6
Slovenia : : : 49.0 48.4 48.5 47.9 47.6 47.2 47.2 47.0 : 46.3
Slovakia : : 60.8 43.6 43.7 39.7 40.5 39.9 41.2 38.8 39.3 : 38.3
Sweden 54.9 64.9 61.3 57.0 58.1 58.4 57.1 57.0 56.9 56.6 56.8 : 56.3
United Kingdom 41.5 42.3 40.2 40.8 41.8 43.5 44.1 44.0 44.8 44.1 45.1 : 45.3
EU-25 : : : 47.0 47.5 48.3 47.7 47.8 47.9 47.6 47.7 : 47.5
EU-15 43.9 49.6 48.3 47.2 47.6 48.3 47.9 47.9 48.1 47.7 47.9 : 47.7
USA 34.1 36.2 33.4 33.5 34.4 34.8 34.3 33.3 34.5 33.1 34.6 : 34.5
Japan 28.6 33.3 38.9 39.2 39.8 39.3 38.6 38.4 38.0 37.9 37.5 : 36.9

¹ ESA 79 up to 1994, ESA 95 from 1995 onwards. Total expenditure includes one-off proceeds relative to UMTS licences (see note 10 on concepts and sources).

TABLE 36 : Total revenue, general government (as a percentage of GDP, 1970-2007) ¹

long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1970-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 44.8 47.3 50.0 50.6 51.0 52.1 50.2 49.1 49.8 48.5 49.0 : 48.2
Germany 43.0 44.3 46.8 45.4 45.0 45.0 43.8 43.6 43.7 43.4 43.2 : 43.0
Greece 27.5 36.1 44.9 44.1 44.7 44.1 43.3 44.3 43.7 44.3 41.6 : 39.6
Spain 28.8 39.1 38.4 38.4 38.7 38.5 38.9 40.4 39.0 40.5 39.2 : 39.2
France 43.3 48.0 51.3 50.8 50.0 49.8 50.4 51.5 50.9 51.1 50.8 : 50.3
Ireland 34.5 37.2 37.7 34.5 33.4 34.1 35.7 34.5 35.4 34.0 34.6 : 34.2
Italy 34.8 45.5 46.9 46.0 45.6 46.1 45.3 44.6 44.9 44.0 44.6 : 44.4
Luxembourg : : 45.9 45.2 45.8 45.2 44.5 44.4 44.0 44.2 44.1 : 43.7
Netherlands 46.5 47.6 46.1 45.8 44.9 44.5 45.0 45.8 47.0 47.6 47.6 : 48.0
Austria 43.4 48.4 51.5 51.4 50.7 49.8 49.4 48.1 48.2 47.4 47.5 : 47.3
Portugal 26.8 35.4 40.0 40.5 41.8 43.3 43.5 42.5 41.7 43.1 42.8 : 43.2
Finland 42.7 53.3 55.4 54.4 54.3 53.4 53.2 51.9 53.7 51.3 53.0 : 52.6
Euro area 40.4 45.1 47.2 46.2 45.8 45.9 45.4 45.6 45.5 45.4 45.2 : 44.9
Czech Republic : : 39.2 39.1 40.2 41.0 41.6 41.8 41.8 41.0 41.5 : 41.4
Denmark 49.6 56.2 57.7 56.6 56.3 56.0 57.6 56.5 58.2 55.7 57.1 : 56.3
Estonia : : 39.8 37.9 38.3 39.6 38.4 40.8 40.7 39.2 41.4 : 39.2
Cyprus : : : 36.6 36.1 39.1 39.9 39.4 41.4 38.9 40.5 : 40.4
Latvia : 33.7 37.6 34.1 33.8 33.8 35.2 35.4 35.2 35.3 35.3 : 35.3
Lithuania : : 36.3 33.2 33.0 32.2 32.1 32.3 32.8 31.6 32.2 : 31.2
Hungary : : : 44.9 44.1 43.9 44.5 43.9 43.4 43.0 41.6 : 40.7
Malta : : : 37.9 40.0 40.0 43.2 48.8 46.5 48.6 46.1 : 45.4
Poland : : 44.8 40.9 42.3 40.9 40.8 44.2 41.4 44.2 41.4 : 41.2
Slovenia : : : 45.1 45.7 45.8 45.8 45.4 45.4 45.1 45.1 : 44.7
Slovakia : : 53.5 37.1 36.0 35.9 37.3 36.1 37.0 34.8 36.3 : 35.8
Sweden 55.4 57.6 62.4 59.5 57.8 58.6 58.7 57.8 58.2 57.4 57.6 : 57.4
United Kingdom 39.3 36.6 39.9 41.5 40.1 40.2 41.0 40.9 41.4 41.4 41.8 : 42.2
EU-25 : : : 45.7 45.2 45.2 45.1 45.2 45.2 45.1 45.0 : 44.8
EU-15 41.0 44.6 46.7 46.0 45.4 45.5 45.3 45.4 45.4 45.2 45.2 : 45.0
USA 30.7 31.4 33.4 33.1 30.6 29.8 29.6 29.3 30.6 29.3 29.9 : 29.6
Japan 27.7 32.5 32.0 33.1 31.9 31.6 31.6 31.8 31.5 31.8 31.3 : 31.1

¹ ESA 79 up to 1994, ESA 95 from 1995 onwards.

138
 ANNEX
TABLE 37 : Net lending (+) or net borrowing (-), general government (as a percentage of GDP, 1970-2007) ¹ 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1970-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium -6.6 -5.8 -1.4 0.6 0.0 0.1 0.0 -0.2 0.0 -0.6 -0.3 : -0.5
Germany -1.9 -3.0 -1.7 -2.9 -3.8 -4.1 -3.7 -3.3 -3.9 -2.8 -3.7 : -3.3
Greece -5.7 -11.5 -5.2 -6.1 -4.9 -5.7 -6.6 -4.5 -3.7 -4.4 -3.8 : -3.8
Spain -2.3 -5.5 -2.6 -0.5 -0.3 0.0 -0.1 0.0 0.2 0.1 0.1 : -0.4
France -1.2 -4.5 -2.6 -1.5 -3.2 -4.1 -3.7 -3.0 -3.2 -3.4 -3.5 : -3.5
Ireland -7.6 -2.1 2.1 0.8 -0.4 0.2 1.4 -0.6 -0.4 -0.6 -0.3 : -0.1
Italy -9.1 -9.1 -3.0 -3.2 -2.7 -3.2 -3.2 -3.6 -4.3 -4.6 -4.2 : -4.6
Luxembourg : 1.9 3.6 6.5 2.1 0.2 -1.2 -1.5 -2.3 -1.9 -2.0 : -2.2
Netherlands -3.1 -3.4 -0.2 -0.2 -2.0 -3.2 -2.1 -2.0 -1.8 -1.6 -1.9 : -1.5
Austria -1.7 -3.9 -2.3 0.1 -0.4 -1.2 -1.0 -2.0 -1.9 -1.7 -1.8 : -1.4
Portugal -4.3 -4.9 -3.3 -4.2 -2.8 -2.9 -3.0 -4.9 -6.0 -4.7 -5.0 : -4.8
Finland 3.9 -5.0 1.3 5.2 4.3 2.5 2.1 1.7 1.9 1.6 1.9 : 1.8
Euro area -3.3 -5.0 -2.1 -1.8 -2.5 -3.0 -2.7 -2.6 -2.9 -2.7 -2.8 : -2.8
Czech Republic : : -3.6 -5.9 -6.8 -12.5 -3.0 -4.5 -3.2 -4.0 -3.7 : -3.3
Denmark -0.4 -2.4 1.2 2.6 1.4 1.2 2.9 2.1 3.7 2.2 3.0 : 2.7
Estonia : : -1.0 0.3 1.5 2.6 1.7 0.9 1.1 0.5 0.6 : 0.4
Cyprus : : : -2.3 -4.5 -6.3 -4.1 -2.9 -2.8 -1.9 -2.8 : -2.4
Latvia : 0.8 -1.6 -2.1 -2.3 -1.2 -0.9 -1.6 -1.2 -1.5 -1.5 : -1.5
Lithuania : : -4.5 -2.0 -1.4 -1.2 -1.4 -2.4 -2.0 -1.9 -1.8 : -1.6
Hungary : : : -3.5 -8.5 -6.5 -5.4 -3.9 -6.1 -4.1 -6.7 : -6.9
Malta : : : -6.6 -5.8 -10.4 -5.1 -3.9 -4.2 -2.8 -3.0 : -2.5
Poland : -3.2 -2.5 -3.7 -3.3 -4.8 -3.9 -4.4 -3.6 -3.8 -3.6 : -3.4
Slovenia : : : -3.9 -2.7 -2.7 -2.1 -2.2 -1.7 -2.1 -1.9 : -1.6
Slovakia : : -7.4 -6.6 -7.8 -3.8 -3.1 -3.8 -4.1 -4.0 -3.0 : -2.5
Sweden 0.6 -7.3 1.2 2.5 -0.3 0.2 1.6 0.8 1.4 0.8 0.8 : 1.1
United Kingdom -2.2 -5.7 -0.3 0.7 -1.7 -3.3 -3.2 -3.0 -3.4 -2.7 -3.3 : -3.0
EU-25 : : : -1.3 -2.4 -3.0 -2.6 -2.6 -2.7 -2.5 -2.7 : -2.7
EU-15 -2.9 -5.1 -1.6 -1.2 -2.2 -2.9 -2.6 -2.5 -2.7 -2.5 -2.7 : -2.6
USA -3.4 -4.8 0.0 -0.4 -3.8 -5.0 -4.7 -3.9 -3.9 -3.8 -4.7 : -4.9
Japan -1.4 -0.9 -6.9 -6.1 -7.9 -7.7 -7.0 -6.6 -6.5 -6.1 -6.1 : -5.8

¹ ESA 79 up to 1994, ESA 95 from 1995 onwards. The net lending (borrowing) includes one-off proceeds relative to UMTS licences (see note 10 on concepts and sources).

TABLE 38 : Interest expenditure, general government (as a percentage of GDP, 1970-2007) ¹

long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1970-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 6.4 9.8 7.5 6.6 5.9 5.4 4.8 4.5 4.5 4.2 4.2 : 3.9
Germany 2.0 3.1 3.4 3.1 3.0 3.0 2.9 3.0 3.0 3.0 2.9 : 2.9
Greece 3.2 12.0 10.0 7.3 6.3 5.7 5.7 5.5 5.4 5.5 5.0 : 4.7
Spain 1.3 4.5 4.2 3.1 2.7 2.4 2.1 2.1 1.9 2.0 1.8 : 1.7
France 1.7 3.3 3.4 3.1 3.0 2.9 2.8 2.9 2.7 3.0 2.8 : 2.8
Ireland 6.1 6.2 3.3 1.5 1.4 1.3 1.2 1.1 1.2 1.0 1.1 : 1.1
Italy 5.6 11.2 8.4 6.5 5.8 5.3 5.1 4.9 4.9 5.0 4.7 : 4.8
Luxembourg : 0.4 0.4 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.2 : 0.2
Netherlands 4.1 5.7 4.7 3.2 2.8 2.7 2.6 2.8 2.5 2.8 2.5 : 2.4
Austria 2.4 4.0 3.6 3.5 3.2 2.9 2.9 2.9 2.9 2.8 2.9 : 2.8
Portugal 3.5 6.3 3.7 3.0 2.9 2.8 2.7 2.9 2.8 3.1 3.0 : 3.2
Finland 1.1 3.6 3.6 2.7 2.2 1.8 1.6 1.6 1.9 1.5 1.8 : 1.7
Euro area 2.9 5.3 4.7 3.9 3.6 3.4 3.2 3.3 3.2 3.3 3.1 : 3.1
Czech Republic : : 1.1 1.1 1.5 1.2 1.3 1.3 1.3 1.4 1.4 : 1.4
Denmark 4.4 6.7 4.6 3.4 3.1 2.7 2.3 2.2 2.2 2.0 1.8 : 1.7
Estonia : : 0.3 0.2 0.3 0.3 0.2 0.2 0.2 0.2 0.2 : 0.2
Cyprus : : : 3.4 3.2 3.4 3.2 3.3 3.3 3.2 3.2 : 3.1
Latvia : : 1.0 1.0 0.8 0.8 0.7 0.8 0.7 0.8 0.7 : 0.7
Lithuania : : 1.2 1.6 1.4 1.3 1.0 0.9 0.9 0.9 0.8 : 0.8
Hungary : : : 4.7 4.0 4.1 4.3 3.8 3.9 3.4 3.7 : 3.5
Malta : : : 3.7 4.0 3.8 4.1 4.3 4.4 4.3 4.4 : 4.3
Poland : 6.0 3.2 3.2 2.9 2.9 2.7 2.6 2.6 2.5 2.5 : 2.4
Slovenia : : : 2.5 2.4 2.2 1.9 1.7 1.7 1.6 1.5 : 1.4
Slovakia : : 2.9 4.1 3.6 2.6 2.2 2.4 2.3 2.2 2.2 : 2.2
Sweden 4.2 5.8 5.4 3.2 3.0 2.1 1.8 2.0 1.8 2.1 1.8 : 1.9
United Kingdom 4.2 2.9 2.7 1.9 1.6 1.6 1.6 2.1 2.1 2.1 2.1 : 2.2
EU-25 : : : 3.5 3.2 3.0 2.9 3.0 2.9 3.0 2.8 : 2.8
EU-15 3.2 5.0 4.4 3.5 3.2 3.0 2.9 3.0 2.9 3.0 2.8 : 2.8
USA 3.6 4.9 4.2 3.4 3.0 2.8 2.7 2.6 2.7 2.6 2.8 : 3.0
Japan 2.7 3.6 3.4 3.2 3.0 2.8 3.0 3.1 3.1 3.3 3.3 : 3.4

¹ ESA 79 up to 1994, ESA 95 from 1995 onwards.

139
ANNEX

TABLE 39 : Primary balance, general government (as a percentage of GDP, 1970-2007) ¹ ² 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1970-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium -0.1 4.1 6.1 7.2 5.9 5.5 4.8 4.3 4.4 3.6 3.8 : 3.4
Germany 0.2 0.1 1.7 0.2 -0.8 -1.0 -0.8 -0.3 -0.9 0.2 -0.9 : -0.4
Greece -2.4 0.5 4.8 1.2 1.3 0.0 -0.9 1.0 1.7 1.0 1.2 : 0.9
Spain -1.1 -1.0 1.6 2.6 2.5 2.4 1.9 2.1 2.1 2.1 1.9 : 1.3
France 0.5 -1.2 0.8 1.6 -0.2 -1.2 -0.8 -0.1 -0.5 -0.4 -0.7 : -0.7
Ireland -1.5 4.1 5.4 2.3 0.9 1.4 2.7 0.5 0.8 0.5 0.8 : 0.9
Italy -3.5 2.1 5.4 3.4 3.0 2.1 1.8 1.3 0.6 0.4 0.6 : 0.3
Luxembourg : 2.2 4.1 6.9 2.5 0.5 -0.9 -1.3 -2.1 -1.7 -1.8 : -2.0
Netherlands 1.1 2.3 4.5 3.0 0.8 -0.5 0.5 0.8 0.7 1.2 0.6 : 1.0
Austria 0.6 0.1 1.3 3.6 2.7 1.7 1.9 0.9 1.0 1.1 1.0 : 1.4
Portugal -0.8 1.3 0.4 -1.2 0.1 -0.1 -0.3 -2.0 -3.1 -1.6 -2.0 : -1.6
Finland 5.0 -1.4 5.0 7.9 6.5 4.3 3.8 3.3 3.8 3.1 3.7 : 3.6
Euro area -0.4 0.4 2.6 2.0 1.0 0.4 0.5 0.6 0.3 0.6 0.2 : 0.2
Czech Republic : : -2.5 -4.8 -5.2 -11.3 -1.8 -3.2 -1.9 -2.6 -2.3 : -1.9
Denmark 4.0 4.3 5.8 5.9 4.4 3.9 5.3 4.3 5.8 4.2 4.9 : 4.4
Estonia : : -0.7 0.5 1.7 2.9 2.0 1.1 1.3 0.7 0.8 : 0.5
Cyprus : : : 1.1 -1.3 -2.8 -0.9 0.4 0.5 1.4 0.3 : 0.7
Latvia : : -0.5 -1.1 -1.5 -0.4 -0.2 -0.8 -0.5 -0.7 -0.8 : -0.8
Lithuania : : -3.3 -0.4 0.0 0.1 -0.4 -1.5 -1.1 -1.1 -1.0 : -0.8
Hungary : : : 1.2 -4.5 -2.4 -1.1 0.0 -2.2 -0.7 -3.0 : -3.4
Malta : : : -2.9 -1.8 -6.5 -1.0 0.5 0.2 1.5 1.3 : 1.9
Poland : 2.8 0.6 -0.6 -0.4 -1.9 -1.2 -1.9 -1.0 -1.3 -1.1 : -1.0
Slovenia : : : -1.4 -0.2 -0.6 -0.2 -0.5 -0.1 -0.5 -0.4 : -0.2
Slovakia : : -4.5 -2.5 -4.1 -1.2 -0.9 -1.4 -1.9 -1.7 -0.8 : -0.2
Sweden 4.8 -1.5 6.5 5.7 2.8 2.3 3.4 2.9 3.2 2.9 2.6 : 2.9
United Kingdom 2.0 -2.9 2.4 2.6 -0.1 -1.8 -1.5 -1.0 -1.3 -0.7 -1.1 : -0.8
EU-25 : : : 2.2 0.8 0.0 0.2 0.4 0.1 0.4 0.1 : 0.1
EU-15 0.3 0.0 2.8 2.3 1.0 0.2 0.3 0.5 0.2 0.5 0.1 : 0.2
USA 0.1 0.0 4.2 3.0 -0.8 -2.2 -2.1 -1.3 -1.2 -1.2 -1.9 : -1.9
Japan 1.3 2.7 -3.5 -3.0 -4.9 -4.9 -4.0 -3.4 -3.4 -2.8 -2.9 : -2.4

¹ ESA 79 up to 1994, ESA 95 from 1995 onwards. The primary balance includes one-off proceeds relative to UMTS licences (see note 10 on concepts and sources).
² Net lending/borrowing excluding interest expenditure.

TABLE 40 : Cyclically adjusted net lending (+) or net borrowing (-), general government (as a percentage of GDP, 1970-2007) ¹
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1970-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium -9.0 -7.7 -1.3 0.1 -0.2 0.5 0.1 0.3 0.4 -0.2 0.1 : 0.0
Germany -1.7 -3.8 -1.9 -3.4 -3.8 -3.5 -3.4 -2.8 -3.4 -2.3 -3.3 : -3.0
Greece -5.8 -10.9 -4.2 -6.5 -5.0 -6.0 -7.5 -5.5 -4.5 -5.3 -4.6 : -4.8
Spain -6.1 -9.1 -2.5 -1.5 -0.9 -0.4 -0.2 0.0 0.2 0.2 0.2 : -0.2
France -2.9 -5.7 -2.5 -2.5 -3.8 -4.0 -3.6 -2.8 -3.0 -3.1 -3.0 : -3.1
Ireland -7.5 -0.6 1.4 -0.7 -1.8 -0.4 1.4 -0.1 0.2 0.1 0.6 : 0.9
Italy -9.2 -8.8 -3.6 -4.1 -3.0 -3.0 -3.0 -2.9 -3.5 -4.0 -3.6 : -4.0
Luxembourg : : 3.6 6.0 2.5 1.2 -0.3 -0.6 -1.5 -0.6 -1.4 : -1.6
Netherlands -8.6 -7.7 -0.9 -1.4 -2.1 -2.3 -1.4 -0.4 -0.6 0.0 -0.8 : -0.7
Austria -1.8 -4.0 -2.6 -0.3 -0.3 -0.8 -0.9 -1.9 -1.5 -1.6 -1.4 : -1.0
Portugal -3.8 -4.2 -3.7 -5.4 -3.4 -2.3 -2.4 -3.9 -5.1 -3.7 -3.9 : -3.6
Finland 0.7 -4.2 0.7 4.8 4.4 2.9 2.3 1.9 2.5 1.8 2.2 : 2.1
Euro area : -6.0 -2.3 -2.7 -2.8 -2.7 -2.5 -2.1 -2.4 -2.2 -2.4 : -2.4
Czech Republic : : -2.7 -5.8 -5.9 -11.6 -2.5 : -3.1 : -3.9 : -3.8
Denmark -4.4 -4.5 0.4 1.5 1.5 2.2 3.8 2.5 4.1 2.4 3.3 : 3.0
Estonia : : 0.0 0.5 1.5 2.7 1.8 : 1.0 : 0.6 : 0.4
Cyprus : : : -3.0 -4.6 -6.0 -3.9 : -2.5 : -2.7 : -2.6
Latvia : : -1.2 -2.1 -2.3 -1.1 -1.0 : -1.5 : -1.6 : -1.3
Lithuania : : -3.4 -1.3 -1.0 -1.8 -2.0 : -2.6 : -2.2 : -1.6
Hungary : : : -3.5 -8.2 -5.9 -5.3 : -5.8 : -6.6 : -7.0
Malta : : : -7.2 -6.5 -10.0 -4.3 : -3.0 : -1.4 : -0.5
Poland : : -2.5 -3.0 -2.2 -4.2 -4.1 : -3.7 : -3.7 : -3.6
Slovenia : : : -4.2 -2.4 -2.0 -1.5 : -1.5 : -1.7 : -1.7
Slovakia : : -7.4 -6.2 -7.7 -3.2 -2.7 : -3.8 : -2.7 : -2.5
Sweden -1.9 -7.2 1.6 2.4 -0.1 1.0 1.8 0.8 1.6 0.7 0.9 : 1.1
United Kingdom -8.2 -9.5 -0.9 0.4 -1.7 -3.4 -3.4 -2.9 -3.2 -2.6 -2.9 : -2.7
EU-25 : : : -2.0 -2.5 -2.7 -2.5 : -2.4 : -2.3 : -2.3
EU-15 : -6.5 -1.9 -1.9 -2.5 -2.6 -2.5 -2.1 -2.3 -2.1 -2.3 : -2.2

¹ ESA 79 up to 1994, ESA 95 from 1995 onwards. The proceeds from UMTS licences are not included in the calculation of the cyclically adjusted balances.
The cyclical adjustment is based on the Production Function approach for calculating output gaps.

140
 ANNEX
TABLE 41 : Cyclically adjusted primary balance, general government (as a percentage of GDP, 1970-2007) ¹ 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1970-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium -2.5 2.1 6.2 6.6 5.7 5.9 4.9 4.7 4.9 4.0 4.2 : 3.9
Germany 0.3 -0.6 1.4 -0.3 -0.8 -0.5 -0.5 0.3 -0.4 0.7 -0.4 : -0.1
Greece -2.6 1.1 5.7 0.8 1.3 -0.3 -1.8 0.0 0.8 0.1 0.4 : 0.0
Spain -4.6 -4.6 1.7 1.6 1.8 2.0 1.8 2.1 2.1 2.2 2.0 : 1.5
France -1.2 -2.4 1.0 0.6 -0.8 -1.1 -0.8 0.2 -0.3 -0.1 -0.3 : -0.3
Ireland -1.4 5.6 4.7 0.9 -0.4 0.9 2.6 1.0 1.4 1.1 1.7 : 2.0
Italy -3.6 2.4 4.8 2.5 2.7 2.3 2.1 2.0 1.4 1.0 1.2 : 0.9
Luxembourg : : 4.0 6.3 2.9 1.5 -0.1 -0.3 -1.3 -0.5 -1.2 : -1.4
Netherlands -4.5 -2.0 3.7 1.8 0.7 0.4 1.2 2.5 1.9 2.8 1.7 : 1.8
Austria 0.6 0.0 1.0 3.2 2.8 2.1 2.0 1.1 1.4 1.2 1.5 : 1.8
Portugal -0.3 2.1 0.1 -2.4 -0.5 0.5 0.3 -1.0 -2.2 -0.7 -0.8 : -0.4
Finland 1.9 -0.6 4.3 7.5 6.6 4.7 3.9 3.5 4.4 3.4 4.1 : 3.8
Euro area : -0.7 2.4 1.2 0.7 0.7 0.7 1.1 0.8 1.0 0.7 : 0.7
Czech Republic : : -1.6 -4.7 -4.4 -10.4 -1.2 : -1.8 : -2.5 : -2.4
Denmark 0.1 2.2 5.0 4.9 4.6 4.8 6.1 4.7 6.2 4.4 5.1 : 4.6
Estonia : : 0.3 0.8 1.8 2.9 2.0 : 1.2 : 0.8 : 0.6
Cyprus : : : 0.4 -1.4 -2.5 -0.7 : 0.7 : 0.4 : 0.5
Latvia : : -0.2 -1.1 -1.5 -0.3 -0.2 : -0.8 : -0.9 : -0.6
Lithuania : : -2.2 0.3 0.4 -0.5 -1.0 : -1.7 : -1.4 : -0.9
Hungary : : : 1.2 -4.2 -1.8 -0.9 : -1.8 : -2.8 : -3.5
Malta : : : -3.5 -2.6 -6.2 -0.2 : 1.4 : 3.0 : 3.8
Poland : : 0.7 0.2 0.7 -1.3 -1.3 : -1.0 : -1.2 : -1.2
Slovenia : : : -1.8 0.0 0.2 0.4 : 0.2 : -0.2 : -0.3
Slovakia : : -4.5 -2.1 -4.0 -0.6 -0.5 : -1.5 : -0.5 : -0.3
Sweden 2.3 -1.5 7.0 5.5 3.0 3.1 3.5 2.9 3.4 2.8 2.7 : 2.9
United Kingdom -4.0 -6.7 1.8 2.3 -0.1 -1.8 -1.8 -0.8 -1.1 -0.5 -0.8 : -0.5
EU-25 : : : 1.5 0.6 0.3 0.4 : 0.5 : 0.5 : 0.5
EU-15 : -1.5 2.5 1.6 0.7 0.4 0.4 0.9 0.6 0.9 0.6 : 0.6

¹ ESA 79 up to 1994, ESA 95 from 1995 onwards. The proceeds from UMTS licences are not included in the calculation of the cyclically adjusted balances.
The cyclical adjustment is based on the Production Function approach for calculating output gaps.

TABLE 42 : Gross debt, general government (as a percentage of GDP, 1980-2007) ¹

2005 2006 2007
estimate of forecast of forecast of
1980 1985 1990 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 74.1 115.2 125.7 108.3 105.8 100.4 96.2 94.9 94.9 91.7 91.1 : 88.1
Germany 31.2 40.7 42.3 59.6 61.2 64.8 66.4 68.0 68.6 68.9 70.0 : 71.4
Greece 25.0 53.6 79.6 114.4 111.6 108.8 109.3 110.5 107.9 108.9 106.8 : 106.0
Spain 16.4 41.4 42.6 56.3 53.2 49.4 46.9 46.5 44.2 44.2 41.9 : 40.7
France 20.8 30.3 35.3 56.8 58.8 63.2 65.1 66.2 66.5 67.1 67.1 : 68.0
Ireland 69.0 100.5 93.1 35.9 32.4 31.5 29.8 29.8 29.0 29.6 28.7 : 28.2
Italy 58.2 82.3 97.2 110.9 108.3 106.8 106.5 105.6 108.6 106.3 108.3 : 107.9
Luxembourg 11.3 11.7 5.4 6.7 6.8 6.7 6.6 7.8 6.8 7.9 7.0 : 7.3
Netherlands 44.0 67.5 73.7 51.5 51.3 52.6 53.1 57.6 54.0 57.9 54.2 : 53.8
Austria 35.4 48.1 56.1 67.0 66.7 65.1 64.3 64.4 64.3 64.1 64.2 : 63.6
Portugal 30.6 58.4 55.3 53.6 56.1 57.7 59.4 66.2 65.9 68.5 69.8 : 72.1
Finland 11.4 16.1 14.1 43.6 42.3 45.2 45.1 44.3 42.8 43.7 41.5 : 40.6
Euro area 33.9 50.8 57.3 69.3 69.2 70.4 70.8 71.7 71.7 71.9 71.7 : 71.8
Czech Republic : : : 26.3 29.8 36.8 36.8 36.4 36.2 37.0 36.6 : 36.9
Denmark 39.1 75.0 62.0 48.0 47.6 45.0 43.2 40.5 36.0 38.2 33.0 : 31.5
Estonia : : : 4.7 5.8 6.0 5.5 4.3 5.1 4.0 4.0 : 3.1
Cyprus : : : 61.9 65.2 69.8 72.0 69.1 70.4 66.6 69.1 : 67.4
Latvia : : : 15.0 14.2 14.6 14.7 14.0 12.8 14.3 13.0 : 13.2
Lithuania : : : 22.9 22.4 21.4 19.6 21.2 20.7 20.9 20.2 : 19.6
Hungary : : : 52.2 55.5 57.4 57.4 57.8 57.2 57.9 58.0 : 59.2
Malta : : : 63.5 63.2 72.8 75.9 76.4 77.2 77.1 77.4 : 77.1
Poland : : : 36.7 41.2 45.3 43.6 46.8 46.3 47.6 47.0 : 47.3
Slovenia : : : 28.4 29.8 29.4 29.8 30.2 29.3 30.4 29.5 : 29.2
Slovakia : : : 49.2 43.7 43.1 42.5 44.2 36.7 44.9 38.2 : 38.5
Sweden 40.0 61.9 42.0 54.3 52.4 52.0 51.1 50.3 50.6 49.2 49.4 : 47.8
United Kingdom 53.2 52.7 34.0 38.7 38.2 39.7 41.5 41.9 43.1 42.5 44.3 : 45.1
EU-25 : : : 62.0 61.4 63.0 63.4 64.1 64.1 64.2 64.2 : 64.3
EU-15 38.0 51.6 53.5 63.1 62.5 64.0 64.3 65.0 65.1 65.1 65.2 : 65.3

¹ Government gross debt as defined in Council Regulation (EC) Nº 3605/93. ESA 95 from 1996 onwards.

141
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TABLE 43 : Gross national saving (as a percentage of GDP, 1970-2007) 07.11.2005

long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1970-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 22.7 24.5 25.7 24.6 24.2 23.6 23.5 23.4 23.5 23.8 23.8 : 23.8
Germany 24.3 21.6 20.5 19.5 19.4 19.3 20.9 21.7 21.0 22.2 21.2 : 21.7
Greece 27.5 20.1 17.1 16.6 15.9 16.9 17.2 19.1 17.3 19.7 18.2 : 18.6
Spain 23.5 20.9 22.2 21.8 22.7 23.3 22.4 23.2 22.1 23.5 22.0 : 21.5
France 22.4 19.0 20.6 21.3 19.8 19.2 19.1 20.1 19.7 20.2 19.8 : 20.2
Ireland 18.6 17.9 24.2 23.2 21.9 23.3 23.6 23.5 23.8 23.4 23.5 : 23.0
Italy 24.2 19.7 21.1 20.0 19.7 18.6 19.4 19.5 18.7 19.9 19.0 : 19.3
Luxembourg 39.4 37.4 34.4 32.8 32.9 29.3 25.5 28.4 25.1 28.9 25.1 : 25.6
Netherlands 25.3 25.6 26.7 26.6 25.7 24.9 25.6 24.1 25.4 25.0 25.2 : 25.2
Austria 24.6 21.8 20.4 20.6 21.1 21.3 21.9 23.8 22.0 24.1 21.9 : 22.1
Portugal 23.3 21.3 19.1 16.7 17.1 16.8 15.0 15.6 13.2 16.0 13.1 : 13.5
Finland 26.4 17.6 24.8 27.3 26.6 23.1 24.3 24.0 22.6 23.8 22.6 : 23.0
Euro area 23.7 20.8 21.5 21.0 20.6 20.3 20.8 21.3 20.7 21.7 20.8 : 21.1
Czech Republic : : 25.0 23.5 22.2 20.9 22.4 23.7 24.1 24.0 24.2 : 24.8
Denmark 19.6 19.7 21.4 23.5 22.5 22.8 22.2 22.6 22.5 22.9 22.9 : 23.3
Estonia : : 19.6 21.2 19.4 18.1 20.0 18.1 22.3 18.8 22.6 : 22.3
Cyprus : : 16.3 13.2 14.3 14.8 15.0 15.9 15.1 16.4 15.3 : 15.8
Latvia : : 14.7 18.9 19.6 20.1 20.5 20.6 22.2 22.2 23.1 : 24.1
Lithuania : : 13.1 15.7 16.6 16.0 16.1 16.2 15.9 17.0 16.1 : 16.2
Hungary : : 19.8 20.7 18.1 16.3 15.4 16.3 16.1 17.4 17.1 : 18.9
Malta : : 16.5 15.6 14.7 13.1 11.3 14.4 16.6 15.2 17.0 : 17.3
Poland : 15.9 19.6 17.9 16.2 16.7 15.8 18.9 15.6 19.4 16.1 : 17.0
Slovenia : 23.8 24.0 24.3 24.8 24.4 24.4 26.6 24.6 27.2 25.1 : 26.0
Slovakia : : 24.8 22.6 22.1 24.6 23.3 22.8 21.0 23.5 22.1 : 23.9
Sweden 21.1 17.3 21.3 22.3 22.1 22.1 23.9 24.3 24.0 24.4 24.0 : 24.1
United Kingdom : 14.9 16.1 15.1 15.2 14.8 14.8 15.4 14.3 15.7 14.5 : 15.0
EU-25 : : 20.6 20.0 19.7 19.4 19.8 20.3 19.7 20.6 19.8 : 20.1
EU-15 : 19.8 20.6 20.2 19.8 19.5 20.0 20.4 19.7 20.7 19.9 : 20.1
USA 18.9 16.3 17.3 15.1 13.6 13.4 13.5 14.3 13.7 14.5 14.3 : 14.5
Japan 33.6 32.4 29.7 27.9 26.8 27.1 27.6 27.5 27.9 27.8 28.0 : 28.2

TABLE 44 : Gross saving, private sector (as a percentage of GDP, 1970-2007) ¹

long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1970-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 25.3 28.3 24.6 22.2 22.3 22.8 22.1 21.3 21.8 21.9 22.3 : 22.4
Germany 21.5 20.8 20.0 19.3 20.3 20.6 22.2 22.6 22.4 22.6 22.6 : 22.7
Greece 29.5 27.2 18.7 16.7 15.9 17.5 18.7 20.7 18.1 21.5 19.2 : 19.7
Spain 21.9 21.5 20.9 18.3 18.8 19.3 18.2 18.6 17.9 18.9 17.9 : 17.8
France 19.9 19.9 19.6 19.0 19.4 19.8 19.2 20.0 19.7 20.2 19.8 : 20.1
Ireland 21.5 18.5 19.5 18.1 18.6 19.7 19.0 20.5 20.8 20.4 20.1 : 19.5
Italy 29.4 25.1 21.3 19.1 19.1 19.2 19.5 19.7 19.1 20.3 19.3 : 19.7
Luxembourg : : 25.5 22.5 24.6 23.0 20.4 23.2 20.8 24.0 20.5 : 21.1
Netherlands 24.0 26.2 24.4 23.2 23.9 24.2 24.3 22.6 22.3 23.3 23.7 : 23.2
Austria 20.5 21.0 18.9 17.2 18.5 19.6 19.7 22.8 20.6 23.3 21.0 : 20.7
Portugal 24.1 22.9 18.5 17.3 17.3 17.9 17.3 18.4 16.6 18.5 15.5 : 15.5
Finland 18.6 19.1 20.5 19.4 19.6 18.0 19.5 19.9 18.1 19.9 18.3 : 18.6
Euro area 22.8 22.0 20.6 19.3 19.8 20.2 20.4 20.8 20.3 21.1 20.5 : 20.6
Czech Republic : : 21.3 21.0 20.3 19.4 18.3 20.9 20.2 21.7 20.2 : 20.1
Denmark 16.5 20.3 18.5 19.6 19.7 20.3 18.1 19.1 17.6 19.3 18.0 : 18.7
Estonia : : 14.4 15.4 12.7 11.5 15.2 13.0 18.2 14.2 18.5 : 18.7
Cyprus : : : 12.1 15.2 17.1 15.6 14.7 14.3 14.3 13.7 : 13.9
Latvia : : 13.7 17.7 18.6 18.5 18.0 20.2 19.4 22.0 20.6 : 21.1
Lithuania : : 12.0 14.8 15.0 14.2 14.2 15.1 14.3 15.6 14.3 : 14.3
Hungary : : : 18.0 17.9 17.5 16.1 16.0 17.4 16.6 20.2 : 21.8
Malta : : : 17.9 16.1 15.5 13.5 14.8 17.5 15.4 17.0 : 16.7
Poland : 16.6 18.2 17.6 15.4 17.2 15.7 19.3 15.3 18.5 15.1 : 16.2
Slovenia : : : 24.0 23.4 22.5 22.1 24.8 21.9 25.4 22.6 : 23.5
Slovakia : : 22.3 23.2 22.8 24.9 22.9 23.1 20.6 24.0 21.5 : 23.0
Sweden 16.4 20.8 17.1 16.8 19.4 19.1 19.6 20.5 19.9 20.7 20.3 : 20.2
United Kingdom : 17.8 15.1 12.6 15.1 16.0 15.9 16.1 14.9 16.0 14.7 : 15.0
EU-25 : : : 18.1 18.9 19.4 19.4 19.8 19.2 20.0 19.4 : 19.5
EU-15 : 21.3 19.6 18.2 19.1 19.5 19.6 20.0 19.3 20.2 19.4 : 19.6
USA 19.9 18.8 15.1 13.0 14.8 15.7 15.7 15.0 14.5 15.1 15.7 : 16.1
Japan 28.6 26.1 28.4 27.8 29.0 29.6 30.0 30.0 30.3 30.1 30.3 : 30.5

¹ ESA 79 up to 1994, ESA 95 from 1995 onwards.

142
 ANNEX
TABLE 45 : Gross saving, general government (as a percentage of GDP, 1970-2007) ¹ 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1970-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium -2.6 -3.8 1.1 2.5 2.0 0.8 1.4 2.2 1.8 1.9 1.6 : 1.4
Germany 2.8 0.8 0.5 0.1 -0.9 -1.3 -1.3 -0.9 -1.4 -0.4 -1.4 : -1.0
Greece -2.1 -7.1 -1.5 -0.1 0.1 -0.5 -1.6 -1.6 -0.9 -1.8 -1.2 : -1.1
Spain 1.7 -0.6 1.3 3.6 4.0 4.0 4.2 4.6 4.2 4.6 4.1 : 3.7
France 2.4 -0.9 1.0 2.2 0.3 -0.7 -0.1 0.0 0.0 0.0 0.1 : 0.2
Ireland -3.0 -0.6 4.8 5.1 3.3 3.6 4.6 3.0 3.1 3.0 3.4 : 3.5
Italy -5.1 -5.5 -0.2 0.9 0.7 -0.5 -0.1 -0.2 -0.3 -0.4 -0.3 : -0.3
Luxembourg : : 8.9 10.3 8.3 6.4 5.0 5.2 4.3 4.9 4.7 : 4.5
Netherlands 1.3 -0.6 2.3 3.5 1.8 0.7 1.3 1.5 3.1 1.9 1.5 : 1.9
Austria 4.1 0.8 1.6 3.6 2.9 1.8 2.3 1.1 1.5 1.0 1.1 : 1.5
Portugal -0.8 -1.6 0.6 -0.5 -0.2 -1.1 -2.2 -2.8 -3.4 -2.5 -2.4 : -2.0
Finland 7.9 -1.6 4.3 8.0 7.0 5.0 4.6 4.3 4.7 4.1 4.5 : 4.4
Euro area 0.9 -1.2 0.9 1.7 0.8 0.1 0.4 0.5 0.4 0.6 0.3 : 0.5
Czech Republic : : 3.8 2.5 2.0 1.4 4.0 2.8 3.8 2.2 3.9 : 4.7
Denmark 3.1 -0.6 2.9 3.7 2.7 2.3 4.0 3.7 5.1 3.7 5.0 : 4.7
Estonia : : 5.3 6.0 6.3 6.4 4.7 5.1 4.1 4.6 4.1 : 3.6
Cyprus : : : 1.1 -0.9 -2.3 -0.6 1.2 0.8 2.0 1.6 : 1.9
Latvia : 3.8 1.1 1.2 1.0 1.6 2.5 0.5 2.8 0.2 2.6 : 3.0
Lithuania : : 1.1 0.8 1.7 1.8 1.9 1.1 1.7 1.4 1.7 : 1.9
Hungary : : : 2.7 0.3 -1.3 -0.8 0.3 -1.3 0.8 -3.1 : -2.9
Malta : : : -2.3 -1.4 -2.4 -2.1 -0.3 -0.6 -0.2 0.3 : 0.9
Poland : -0.7 1.6 0.3 0.8 -0.5 0.1 -0.4 0.3 0.8 1.0 : 0.8
Slovenia : : : 0.4 1.5 1.9 2.2 1.7 2.5 1.8 2.4 : 2.4
Slovakia : : 2.6 -0.6 -0.7 -0.3 0.4 -0.3 0.4 -0.5 0.6 : 0.9
Sweden 4.8 -3.5 4.2 5.5 2.9 3.2 4.5 3.7 4.4 3.6 3.8 : 4.1
United Kingdom 1.2 -2.9 1.0 2.4 0.1 -1.3 -1.1 -0.7 -0.6 -0.3 -0.2 : 0.1
EU-25 : : : 1.9 0.8 0.0 0.4 0.5 0.5 0.7 0.5 : 0.6
EU-15 1.2 -1.5 1.0 2.0 0.8 0.0 0.3 0.5 0.4 0.6 0.4 : 0.6
USA -1.1 -2.5 2.2 2.1 -1.2 -2.3 -2.2 -0.7 -0.7 -0.6 -1.4 : -1.6
Japan 5.0 6.3 1.3 0.0 -2.2 -2.5 -2.4 -2.5 -2.4 -2.3 -2.3 : -2.2

¹ ESA 79 up to 1994, ESA 95 from 1995 onwards.

TABLE 46 : Exports of goods, volume (percentage change on preceding year, 1961-2007)

long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 6.2 4.8 5.0 0.2 1.3 4.1 6.9 5.7 2.2 6.0 4.9 : 5.2
Germany 6.2 3.9 8.9 6.3 3.5 3.0 10.0 6.9 6.2 6.4 6.5 : 6.3
Greece 8.0 4.1 4.0 -1.6 -7.1 4.2 -2.5 5.6 6.6 5.6 6.9 : 6.9
Spain : 11.9 10.0 3.9 3.3 5.0 4.4 6.3 1.1 6.1 2.1 : 2.6
France 7.1 6.0 8.2 2.9 2.0 -0.9 3.9 5.3 2.5 6.4 4.5 : 4.8
Ireland 8.5 13.2 15.2 4.6 4.2 -4.0 5.0 6.1 2.5 6.3 5.3 : 5.5
Italy 8.1 7.3 4.1 1.5 -2.9 -2.1 3.3 5.1 0.0 4.6 4.2 : 3.3
Luxembourg 3.8 4.0 8.5 9.8 -0.3 -4.3 3.3 6.2 2.5 6.4 5.5 : 5.8
Netherlands 6.6 6.0 7.3 1.3 1.3 2.7 9.4 4.4 3.8 6.2 5.0 : 5.3
Austria : 4.6 9.7 6.8 4.6 2.2 11.8 6.9 4.4 7.0 6.0 : 5.7
Portugal : 6.1 6.7 2.0 1.9 5.6 4.5 4.7 1.4 6.9 4.9 : 4.8
Finland : 7.7 12.4 -0.2 4.2 2.0 5.5 5.5 4.3 5.2 5.9 : 5.4
Euro area ¹ 6.9 6.0 8.1 3.7 2.1 1.7 7.2 5.9 3.5 6.1 5.2 : 5.2
Czech Republic : : 11.8 14.4 6.0 10.1 23.5 12.7 9.5 11.0 10.1 : 9.9
Denmark 5.8 4.7 6.0 2.5 6.0 -1.7 4.1 4.2 5.3 5.2 4.7 : 4.4
Estonia : : 16.9 -5.5 3.9 6.0 17.5 13.4 19.8 10.8 16.2 : 13.3
Cyprus : : -1.5 2.5 -13.5 -4.5 9.9 4.0 15.0 4.0 3.8 : 3.8
Latvia : : 11.3 8.8 8.4 6.8 8.0 11.4 13.1 11.2 13.2 : 12.8
Lithuania : : 5.2 24.6 20.1 7.2 2.5 8.9 9.8 7.9 10.3 : 9.7
Hungary : : 20.3 6.9 5.7 9.2 16.7 13.3 10.7 11.6 10.6 : 10.1
Malta : : 4.0 9.0 5.1 -2.8 3.3 3.5 -3.5 3.5 0.8 : 2.6
Poland : : 10.6 7.8 6.6 17.7 28.0 11.0 4.2 11.3 5.0 : 6.0
Slovenia : -7.8 8.1 7.0 6.4 4.4 12.8 8.2 9.9 7.9 7.8 : 7.5
Slovakia : : 11.3 5.7 5.7 28.0 13.3 12.5 7.1 13.1 10.3 : 14.9
Sweden : 7.5 8.6 -2.1 2.0 4.9 9.8 6.5 4.0 5.5 5.9 : 6.1
United Kingdom 4.6 5.4 6.4 2.7 -1.7 -0.3 1.7 6.5 6.3 5.4 5.8 : 5.3
EU-25 ² : : 8.3 3.8 2.2 2.4 7.8 6.4 4.2 6.4 5.5 : 5.5
EU-15 ² 6.6 6.0 7.9 3.3 1.8 1.6 6.8 5.9 3.9 6.0 5.3 : 5.2
USA 6.2 7.8 8.0 -6.1 -4.0 1.8 8.9 7.4 7.5 9.8 10.0 : 8.3
Japan : 1.9 3.8 -6.2 8.1 9.1 14.2 8.0 5.6 8.2 5.9 : 6.5

¹ Excluding Spain, Austria and Finland up to 1973 and Portugal up to 2003.

² Excluding Spain, Austria, Finland and Sweden up to 1973 and Portugal up to 2003.

143
ANNEX

TABLE 47 : Imports of goods, volume (percentage change on preceding year, 1961-2007) 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 5.8 3.8 5.0 -1.0 0.4 3.9 7.5 6.0 2.8 6.4 4.6 : 5.1
Germany 6.7 4.4 8.4 0.3 -0.3 6.6 8.2 7.2 4.4 7.3 5.3 : 5.1
Greece 8.0 3.9 9.4 -6.3 3.7 7.1 9.0 4.1 1.0 4.4 4.4 : 4.7
Spain : 7.5 11.9 3.8 4.4 6.4 10.1 9.1 7.0 8.2 6.8 : 5.9
France 7.3 3.7 8.8 1.7 2.0 0.8 7.4 6.6 5.7 6.9 5.2 : 5.7
Ireland 6.7 9.0 13.7 3.6 -0.1 -7.7 8.4 6.4 4.7 7.7 5.7 : 6.8
Italy 7.2 3.6 6.7 0.0 -1.0 0.9 3.2 5.4 0.8 5.6 4.4 : 3.7
Luxembourg 4.6 3.4 8.3 8.7 -2.6 -1.8 1.1 6.3 3.0 6.1 5.0 : 5.0
Netherlands 6.0 5.8 7.8 1.6 0.4 3.6 9.0 4.5 3.5 5.7 5.3 : 7.0
Austria : 3.7 7.9 4.5 0.2 6.6 8.8 6.2 2.0 7.1 5.8 : 5.5
Portugal : 6.7 9.2 1.9 -0.1 0.0 7.2 4.6 1.8 6.2 3.2 : 4.2
Finland : 0.6 11.3 1.0 3.0 3.7 6.9 3.8 6.1 4.2 4.5 : 4.5
Euro area ¹ 6.9 4.7 8.4 1.1 0.8 3.8 7.7 6.4 4.0 6.7 5.2 : 5.3
Czech Republic : : 10.4 14.7 4.6 8.9 19.4 13.3 4.5 10.8 8.7 : 9.4
Denmark 4.8 4.9 7.3 1.6 5.3 -2.2 7.0 6.1 7.1 5.3 5.6 : 4.8
Estonia : : 14.1 0.3 5.2 13.2 15.4 9.9 14.2 9.1 11.8 : 11.5
Cyprus : : 4.6 6.0 -0.9 -4.9 10.6 0.5 2.6 4.6 4.8 : 5.0
Latvia : : 8.3 16.7 4.0 11.3 17.0 7.5 5.5 9.7 10.5 : 10.6
Lithuania : : 8.8 20.0 17.6 9.9 14.4 11.2 11.1 7.8 11.2 : 10.2
Hungary : : 19.5 3.8 4.9 10.4 13.6 11.8 8.9 10.9 10.9 : 9.9
Malta : : 3.1 -9.4 -2.6 10.5 3.3 3.1 -2.7 2.7 1.9 : 3.2
Poland : : 17.6 -5.0 3.6 10.3 6.5 12.3 1.5 12.8 5.5 : 6.9
Slovenia : -1.1 8.0 3.2 4.4 7.3 14.5 8.5 6.5 7.8 7.0 : 7.5
Slovakia : : 11.7 11.7 5.0 14.1 15.1 13.8 8.1 13.5 9.6 : 11.5
Sweden : 3.7 7.8 -5.1 -0.2 6.1 7.7 8.1 5.3 7.0 7.4 : 6.5
United Kingdom 4.7 3.0 8.8 5.4 4.3 2.0 6.8 6.8 3.9 5.0 4.4 : 4.6
EU-25 ² : : 8.9 1.7 1.6 4.1 8.0 7.0 4.2 6.8 5.4 : 5.6
EU-15 ² 6.5 4.5 8.4 1.4 1.3 3.5 7.5 6.5 4.1 6.4 5.2 : 5.2
USA 6.8 8.2 12.3 -3.2 3.7 4.9 11.0 7.5 6.4 4.6 5.8 : 5.1
Japan : 5.1 3.5 0.1 1.1 3.8 7.7 7.1 6.4 6.2 7.8 : 9.1

¹ Excluding Spain, Austria and Finland up to 1973 and Portugal up to 2003.

² Excluding Spain, Austria, Finland and Sweden up to 1973 and Portugal up to 2003.

TABLE 48 : Trade balance (fob-fob, as a percentage of GDP, 1974-2007)

long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1974-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium -2.9 2.9 3.4 2.8 3.8 3.5 2.7 2.3 2.1 2.6 2.2 : 2.4
Germany 4.1 1.8 3.2 4.8 6.4 6.1 7.0 7.4 7.1 7.5 7.1 : 7.4
Greece -9.9 -12.6 -15.2 -16.2 -16.6 -16.9 -17.9 -17.5 -17.1 -17.1 -17.1 : -16.7
Spain -5.2 -3.8 -4.0 -5.6 -5.0 -5.1 -6.3 -7.7 -7.6 -8.3 -8.5 : -9.3
France -1.4 0.2 1.1 0.2 0.5 0.2 -0.4 -1.3 -1.8 -1.5 -2.0 : -2.0
Ireland -4.8 14.6 21.2 24.0 25.1 21.8 19.8 20.5 18.0 20.1 17.5 : 17.0
Italy -1.1 2.2 3.1 1.8 1.6 1.2 1.0 1.0 0.5 1.1 0.4 : 0.6
Luxembourg -8.5 -11.2 -12.0 -12.5 -10.5 -10.6 -10.5 -10.7 -12.3 -10.4 -12.4 : -12.1
Netherlands 1.2 5.2 5.0 6.0 6.7 6.8 7.3 5.3 7.4 5.7 6.8 : 6.2
Austria -4.9 -3.7 -1.9 -0.6 1.7 0.5 1.5 1.8 1.8 1.6 1.4 : 1.3
Portugal : -9.6 -9.8 -11.4 -9.8 -8.4 -9.7 -9.8 -10.9 -9.8 -11.2 : -11.1
Finland 0.2 6.1 9.8 10.4 9.6 7.9 6.9 7.2 5.1 7.3 4.8 : 4.7
Euro area -0.4 0.8 1.8 1.8 2.5 2.1 1.9 1.6 1.3 1.5 1.0 : 0.9
Euro area, adjusted ¹ 1.0 1.8 1.4 1.3 1.1 0.8 1.1 0.5 : 0.5
Czech Republic : -2.5 -6.2 -5.0 -3.0 -2.7 -0.8 0.1 1.7 0.5 2.7 : 3.1
Denmark -2.6 3.6 2.6 3.7 3.7 3.6 2.9 2.1 3.0 2.1 3.1 : 2.9
Estonia : : -18.8 -13.2 -15.4 -16.9 -17.5 -14.8 -16.4 -14.0 -15.3 : -15.0
Cyprus : : -24.3 -27.2 -27.2 -23.7 -25.7 -24.5 -25.9 -24.5 -26.7 : -26.5
Latvia : : -14.6 -16.2 -16.0 -18.1 -20.5 -19.8 -18.5 -19.3 -17.4 : -16.1
Lithuania : : -11.8 -9.1 -9.4 -9.1 -10.6 -11.1 -10.8 -10.9 -10.7 : -10.7
Hungary : : -4.3 -4.3 -3.2 -4.0 -3.0 -2.0 -2.6 -1.9 -2.7 : -2.7
Malta : -23.0 -19.7 -13.8 -8.9 -14.5 -15.8 -17.2 -15.8 -17.3 -16.3 : -16.8
Poland : 0.1 -6.5 -4.1 -3.8 -2.7 -1.1 -3.0 -4.3 -3.6 -4.4 : -4.6
Slovenia : 1.7 -4.7 -3.1 -1.1 -2.2 -3.9 -3.9 -3.4 -3.8 -3.8 : -4.0
Slovakia : : -8.5 -10.6 -9.0 -2.3 -3.5 -4.8 -4.9 -5.1 -4.7 : -2.2
Sweden : 3.9 7.0 6.9 6.7 6.3 6.9 6.7 6.4 6.6 5.9 : 6.0
United Kingdom -2.1 -1.8 -2.5 -4.1 -4.5 -4.3 -5.2 -5.3 -4.9 -5.2 -4.7 : -4.5
EU-25 : : 1.0 0.6 1.1 0.9 0.7 0.2 0.2 0.1 0.0 : -0.1
EU-25, adjusted ¹ -0.5 0.1 0.0 -0.3 -0.5 -0.6 -0.5 -0.8 : -0.8
EU-15 -0.6 0.6 1.3 0.9 1.4 1.2 0.9 0.4 0.4 0.3 0.2 : 0.2
USA -1.6 -1.9 -3.2 -4.3 -4.7 -5.1 -5.8 -6.0 -6.3 -5.8 -6.3 : -6.2
Japan 2.2 2.9 2.5 1.7 2.4 2.5 2.8 3.2 2.6 3.7 2.6 : 2.9

¹ See note 8 on concepts and sources.

144
 ANNEX
TABLE 49 : Current account balance (as a percentage of GDP, 1961-2007) 07.11.2005
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 0.5 4.0 5.0 4.1 5.0 4.5 3.5 3.7 3.0 4.0 3.1 : 3.3
Germany 1.3 -1.2 -0.9 0.0 2.2 2.1 3.7 4.1 3.8 4.4 3.9 : 4.5
Greece -0.9 -0.5 -4.4 -7.1 -7.8 -8.5 -8.2 -6.3 -7.4 -5.6 -6.6 : -6.1
Spain -1.1 -2.0 -1.6 -4.5 -3.9 -4.2 -5.9 -5.7 -7.4 -6.2 -8.3 : -9.1
France -0.6 -0.2 1.9 1.2 0.8 0.2 -0.7 -0.5 -0.8 -0.6 -0.9 : -0.8
Ireland -4.4 1.9 1.4 -0.6 -1.0 0.0 -0.8 -1.1 -2.2 -1.4 -2.5 : -2.8
Italy 0.2 -0.1 1.7 0.3 -0.3 -0.8 -0.4 -0.5 -1.2 -0.4 -1.2 : -1.0
Luxembourg 12.5 13.3 11.1 9.0 11.8 8.2 8.4 7.0 5.9 7.3 6.1 : 6.1
Netherlands 1.8 4.4 4.7 5.2 6.0 5.8 6.1 3.3 6.0 3.9 5.4 : 4.8
Austria -0.8 -1.4 -2.7 -1.9 0.4 -0.5 0.3 2.2 0.8 2.2 0.6 : 0.6
Portugal -2.5 -2.7 -7.6 -10.5 -8.2 -6.1 -7.8 -7.7 -9.5 -7.5 -9.7 : -9.4
Finland -2.1 -1.3 5.7 6.9 7.3 3.8 4.1 4.0 2.2 4.1 2.0 : 2.1
Euro area 0.1 -0.3 0.6 0.0 0.8 0.5 0.6 0.6 0.0 0.6 -0.1 : -0.1
Euro area, adjusted ¹ 0.0 0.9 0.3 0.6 0.5 0.1 0.5 -0.1 : 0.0
Czech Republic : : -4.5 -5.4 -5.6 -6.3 -5.2 -4.7 -2.9 -4.6 -2.6 : -2.3
Denmark -2.6 1.7 0.9 3.1 2.5 3.3 2.5 2.1 2.9 2.2 3.2 : 3.4
Estonia : : -7.7 -5.6 -10.2 -12.0 -12.7 -12.1 -9.9 -11.2 -7.7 : -7.1
Cyprus : : -2.8 -3.3 -4.5 -3.0 -5.7 -4.9 -5.8 -4.5 -5.5 : -4.7
Latvia : : -6.8 -7.6 -6.7 -8.2 -12.6 -10.5 -11.1 -10.0 -10.5 : -9.8
Lithuania : : -9.5 -4.9 -5.3 -6.9 -8.0 -8.8 -7.4 -8.5 -7.1 : -7.0
Hungary : : -8.3 -6.1 -7.1 -8.7 -8.8 -8.7 -8.4 -8.2 -8.4 : -7.7
Malta : : -8.0 -4.3 0.3 -5.8 -10.5 -9.9 -6.7 -9.3 -6.8 : -7.0
Poland : 0.1 -3.9 -2.9 -2.6 -2.2 -4.2 -2.4 -3.2 -3.0 -3.5 : -3.9
Slovenia : 4.3 -1.2 0.2 1.5 -0.3 -2.0 -1.0 -1.6 -0.8 -1.8 : -2.0
Slovakia : : -6.6 -7.4 -7.3 -0.5 -3.4 -5.0 -6.6 -4.9 -6.2 : -3.7
Sweden -0.4 -0.1 4.1 4.6 5.4 5.9 7.8 7.5 7.0 7.3 6.3 : 6.1
United Kingdom : -1.6 -1.4 -2.2 -1.6 -1.5 -2.0 -2.2 -2.1 -2.2 -1.9 : -1.6
EU-25 : : 0.2 -0.3 0.3 0.1 0.0 0.0 -0.3 0.0 -0.4 : -0.3
EU-25, adjusted ¹ -0.8 0.0 -0.1 -0.2 -0.4 -0.5 -0.4 -0.7 : -0.6
EU-15 : -0.4 0.4 -0.1 0.6 0.4 0.5 0.2 -0.1 0.3 -0.2 : -0.1
USA -0.3 -0.8 -2.4 -3.7 -4.4 -4.6 -5.6 -5.9 -6.2 -5.8 -6.3 : -6.4
Japan 1.0 2.6 2.4 2.1 2.8 3.2 3.7 3.8 3.5 4.2 3.2 : 3.3

¹ See note 8 on concepts and sources.

TABLE 50 : Net lending (+) or net borrowing (-) of the nation (as a percentage of GDP, 1961-2007)
long-term 2005 2006 2007
average 5-year average estimate of forecast of forecast of
1961-90 1991-95 1996-00 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 0.3 3.8 5.0 4.0 4.8 4.4 3.4 3.3 3.0 3.6 3.1 : 3.2
Germany 1.2 -1.3 -0.9 0.0 2.2 2.1 3.7 4.1 3.9 4.4 3.9 : 4.4
Greece : : -2.5 -7.0 -7.0 -7.2 -6.5 -3.9 -6.1 -3.3 -4.9 : -4.6
Spain : -1.4 -0.6 -3.7 -2.8 -3.1 -4.8 -4.7 -6.3 -5.2 -7.3 : -8.2
France : -0.2 2.0 1.1 0.8 -0.3 -0.6 -0.6 -0.8 -0.8 -0.9 : -0.8
Ireland : 3.1 2.4 0.0 -0.6 0.1 -0.5 -0.9 -2.0 -1.2 -2.3 : -2.6
Italy : 0.0 1.9 0.4 -0.3 -0.7 -0.3 -0.3 -1.1 -0.2 -1.1 : -0.9
Luxembourg : : : : : : : 7.0 5.9 7.3 6.1 : 6.1
Netherlands : 4.0 4.2 5.0 5.9 5.6 5.9 2.0 3.8 2.3 3.3 : 4.8
Austria : -1.5 -2.8 -2.1 0.2 -0.5 0.2 2.1 0.7 2.0 0.4 : 0.5
Portugal : -0.3 -5.1 -8.7 -6.4 -3.6 -5.8 -6.1 -7.9 -6.0 -8.1 : -8.0
Finland -1.8 -0.9 5.7 6.9 7.4 4.4 5.0 4.0 2.3 4.2 2.0 : 2.2
Euro area : -0.2 0.8 0.2 1.0 0.6 0.8 0.7 0.1 0.7 -0.1 : 0.1
Euro area, adjusted ¹ 0.1 1.0 0.4 0.8 0.6 0.2 0.6 0.0 : 0.2
Czech Republic : : -4.5 -5.4 -5.7 -6.3 -5.7 -4.5 -2.7 -4.3 -2.4 : -2.1
Denmark : 1.7 1.1 3.1 2.6 3.3 2.5 2.0 2.9 2.1 3.1 : 3.3
Estonia : : -8.4 -7.8 -12.1 -13.4 -10.5 -11.2 -9.0 -9.9 -6.8 : -6.2
Cyprus : : : : : : : -4.8 -5.7 -4.4 -5.4 : -4.6
Latvia : 17.1 -6.6 -7.1 -6.5 -7.6 -11.6 -7.9 -9.6 -6.9 -8.5 : -7.2
Lithuania : : -9.5 -4.7 -4.7 -6.5 -7.3 -7.7 -5.9 -7.4 -5.5 : -5.3
Hungary : : -8.0 -5.5 -6.8 -8.8 -8.4 -8.0 -7.8 -7.0 -7.3 : -5.9
Malta : : -7.0 -4.3 0.5 -5.6 -9.1 -9.1 -4.0 -8.5 -5.6 : -5.8
Poland : 1.9 -3.9 -2.8 -2.6 -2.2 -4.2 -1.9 -3.2 -2.4 -3.6 : -3.9
Slovenia : 4.2 -1.2 0.2 1.5 -0.3 -1.9 -1.6 -1.5 -1.3 -1.8 : -1.9
Slovakia : : -6.5 -7.4 -7.3 -0.8 -3.3 -4.5 -6.2 -4.4 -5.7 : -3.3
Sweden : -0.5 3.6 4.5 5.3 5.9 7.8 7.5 7.0 7.3 6.3 : 6.1
United Kingdom : -1.6 -1.3 -2.1 -1.5 -1.4 -1.8 -2.1 -1.8 -2.1 -1.7 : -1.4
EU-25 : : : : : : : 0.1 -0.2 0.1 -0.3 : -0.1
EU-25, adjusted ¹ : : : : -0.3 -0.4 -0.3 -0.6 : -0.4
EU-15 : -0.4 0.6 0.0 0.8 0.5 0.7 0.3 0.0 0.3 -0.1 : 0.1
USA -0.3 -0.9 -2.4 -3.7 -4.4 -4.7 -5.6 -6.0 -6.2 -5.8 -6.3 : -6.4
Japan 1.0 2.5 2.1 2.0 2.8 3.1 3.6 3.7 3.4 4.1 3.1 : 3.2

¹ See note 8 on concepts and sources.

145
ANNEX

TABLE 51 : Trade balance (fob-fob, in billions of Ecu/euro, 1999-2007) 07.11.2005

2005 2006 2007
estimate of forecast of forecast of
1999 2000 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 8.9 5.3 7.1 10.2 9.7 7.9 6.9 6.4 7.9 7.0 : 7.7
Germany 66.2 62.6 100.7 136.6 132.0 154.4 163.7 158.7 168.3 161.8 : 172.0
Greece -18.4 -23.0 -21.3 -23.6 -26.0 -29.9 -30.8 -30.6 -32.0 -32.6 : -34.1
Spain -29.0 -39.9 -38.0 -36.2 -39.5 -52.5 -65.5 -68.3 -75.5 -82.5 : -94.9
France 15.6 -2.5 2.4 8.4 -3.1 -13.8 -22.3 -30.7 -26.8 -34.3 : -36.6
Ireland 20.4 24.9 28.1 32.7 30.3 29.4 32.4 28.8 34.2 30.1 : 31.5
Italy 26.1 15.1 21.7 20.5 15.0 13.8 13.4 6.2 15.5 6.1 : 9.3
Luxembourg -2.6 -2.5 -2.8 -2.4 -2.5 -2.7 -2.9 -3.4 -3.0 -3.6 : -3.7
Netherlands 14.7 19.7 27.0 31.2 32.5 35.4 25.0 36.6 28.0 34.7 : 32.7
Austria -3.1 -3.1 -1.2 3.8 1.2 3.7 4.3 4.4 4.0 3.5 : 3.3
Portugal -12.9 -14.7 -14.7 -13.2 -11.5 -13.8 -13.7 -15.7 -14.2 -16.7 : -17.2
Finland 11.5 14.9 14.1 13.5 11.4 10.3 11.2 7.9 11.8 7.6 : 7.9
Euro area 97.3 56.7 123.2 181.5 149.5 142.1 121.6 100.4 118.2 81.2 : 77.8
Euro area, adjusted ¹ 56.2 7.6 73.3 128.5 102.7 102.8 88.9 61.1 85.5 41.9 : 38.5
Czech Republic -1.8 -3.4 -3.4 -2.3 -2.2 -0.7 0.1 1.7 0.5 2.9 : 3.5
Denmark 4.8 5.5 6.7 6.7 6.8 5.7 4.3 6.2 4.4 6.6 : 6.5
Estonia -0.8 -0.8 -0.9 -1.2 -1.4 -1.6 -1.4 -1.7 -1.5 -1.7 : -1.9
Cyprus -2.1 -2.7 -2.9 -3.0 -2.8 -3.3 -3.3 -3.4 -3.5 -3.7 : -3.9
Latvia -1.0 -1.1 -1.5 -1.6 -1.8 -2.3 -2.4 -2.3 -2.5 -2.4 : -2.6
Lithuania -1.3 -1.2 -1.2 -1.4 -1.5 -1.9 -2.2 -2.1 -2.3 -2.3 : -2.6
Hungary -2.0 -3.2 -2.5 -2.2 -2.9 -2.4 -1.8 -2.3 -1.9 -2.5 : -2.6
Malta -0.6 -0.8 -0.6 -0.4 -0.6 -0.7 -0.8 -0.7 -0.8 -0.7 : -0.8
Poland -10.6 -13.3 -8.5 -7.7 -12.8 -11.8 -7.1 -10.0 -8.7 -11.0 : -12.2
Slovenia -1.2 -1.2 -0.7 -0.3 -0.5 -1.0 -1.1 -1.0 -1.1 -1.1 : -1.3
Slovakia -1.1 -1.0 -2.5 -2.3 -0.7 -1.2 -1.8 -1.8 -2.0 -1.9 : -0.9
Sweden 15.7 16.9 16.8 17.2 16.9 19.3 19.6 18.2 20.2 17.3 : 18.4
United Kingdom -44.1 -54.1 -65.4 -74.9 -69.2 -88.8 -93.1 -87.6 -96.1 -87.5 : -87.2
EU-25 51.5 -3.9 56.6 108.2 76.8 52.9 20.9 16.3 10.7 -3.5 : -7.5
EU-25, adjusted ¹ : : -47.4 6.1 -4.7 -27.2 -50.2 -63.8 -60.5 -83.7 : -87.6
EU-15 73.8 25.0 81.3 130.5 103.9 78.3 52.3 37.2 46.7 17.6 : 15.4
USA -326.7 -497.7 -487.8 -521.2 -495.4 -545.4 -574.2 -625.2 -578.7 -684.7 : -703.0
Japan 115.8 126.4 78.4 99.4 93.7 107.0 120.4 99.0 145.5 99.0 : 115.7

¹ See note 8 on concepts and sources.

TABLE 52 : Current account balance (in billions of Ecu/euro, 1999-2007)

2005 2006 2007
estimate of forecast of forecast of
1999 2000 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 12.4 10.5 10.6 13.3 12.3 10.0 11.0 9.0 12.5 9.7 : 10.6
Germany -23.8 -33.6 -0.6 47.9 45.4 82.4 90.9 86.0 98.8 90.0 : 104.2
Greece -6.8 -10.1 -9.3 -11.2 -13.1 -13.7 -11.1 -13.3 -10.5 -12.5 : -12.4
Spain -16.4 -23.7 -30.5 -28.2 -28.8 -45.3 -48.7 -66.5 -55.9 -79.9 : -93.5
France 33.9 15.9 17.6 12.2 3.3 -11.3 -8.4 -14.4 -11.1 -15.7 : -14.6
Ireland 0.3 -0.4 -0.7 -1.3 0.0 -1.2 -1.7 -3.5 -2.4 -4.3 : -5.1
Italy 11.1 -2.0 3.4 -3.9 -11.0 -5.7 -6.8 -16.8 -5.3 -17.9 : -15.6
Luxembourg 1.7 2.9 2.0 2.7 1.3 1.5 1.9 1.6 2.1 1.8 : 1.9
Netherlands 15.0 19.6 23.1 28.0 27.8 29.8 15.8 29.9 19.1 27.5 : 25.4
Austria -6.3 -5.7 -4.1 0.8 -1.0 0.7 5.4 2.0 5.5 1.4 : 1.6
Portugal -10.2 -13.2 -13.5 -11.1 -8.7 -11.2 -10.7 -13.7 -10.9 -14.5 : -14.5
Finland 7.4 9.4 9.4 10.3 5.5 6.2 6.2 3.4 6.7 3.1 : 3.5
Euro area 16.5 -33.2 5.3 57.0 32.9 42.2 43.7 3.6 48.6 -11.3 : -8.5
Euro area, adjusted ¹ -30.5 -82.1 -3.3 64.6 20.4 46.7 37.0 8.1 41.8 -6.7 : -4.0
Czech Republic -1.4 -2.9 -3.7 -4.4 -5.0 -4.5 -4.6 -2.9 -4.7 -2.7 : -2.6
Denmark 3.1 2.4 5.6 4.6 6.2 4.8 4.3 6.0 4.7 6.8 : 7.6
Estonia -0.2 -0.3 -0.4 -0.8 -1.0 -1.2 -1.2 -1.0 -1.2 -0.9 : -0.9
Cyprus -0.2 -0.5 -0.4 -0.5 -0.4 -0.7 -0.7 -0.8 -0.6 -0.8 : -0.7
Latvia -0.6 -0.4 -0.7 -0.7 -0.8 -1.4 -1.3 -1.4 -1.3 -1.5 : -1.6
Lithuania -1.1 -0.7 -0.7 -0.8 -1.1 -1.3 -1.7 -1.5 -1.8 -1.6 : -1.7
Hungary -4.3 -4.3 -3.5 -4.9 -6.3 -7.1 -7.8 -7.4 -8.0 -7.7 : -7.5
Malta -0.1 -0.5 -0.2 0.0 -0.2 -0.3 -0.4 -0.3 -0.4 -0.3 : -0.3
Poland -8.0 -10.8 -6.0 -5.3 -4.1 -8.2 -5.5 -7.4 -7.4 -8.9 : -10.4
Slovenia -0.7 -0.6 0.0 0.3 -0.1 -0.5 -0.3 -0.4 -0.2 -0.5 : -0.6
Slovakia -0.7 -0.6 -1.7 -1.9 -0.3 -1.1 -1.9 -2.4 -1.9 -2.4 : -1.6
Sweden 10.0 10.8 11.3 13.8 15.6 21.7 21.9 19.9 22.4 18.4 : 18.6
United Kingdom -36.8 -40.1 -35.7 -26.2 -24.2 -34.4 -39.3 -36.5 -40.8 -35.9 : -31.2
EU-25 -22.8 -78.8 -28.6 33.0 11.3 8.9 -1.8 -31.2 -1.5 -47.4 : -40.1
EU-25, adjusted ¹ : : -73.2 0.5 -7.1 -18.5 -43.8 -58.6 -43.5 -74.8 : -67.5
EU-15 -7.2 -60.0 -13.5 49.2 30.5 34.3 30.6 -7.0 34.9 -22.0 : -13.5
USA -256.9 -429.9 -413.8 -485.8 -446.5 -524.4 -564.1 -614.2 -574.5 -685.9 : -730.5
Japan 107.8 129.5 98.0 119.8 120.5 138.5 143.4 131.5 162.9 121.4 : 129.5

¹ See note 8 on concepts and sources.

146
 ANNEX
TABLE 53 : Export markets (a) (percentage change on preceding year, 1999-2007) 07.11.2005
2005 2006 2007
estimate of forecast of forecast of
1999 2000 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium 6.9 11.9 1.1 2.4 4.0 8.5 7.1 5.3 6.8 6.0 : 6.1
Germany 5.9 12.3 0.6 3.8 4.0 9.7 8.0 5.8 7.4 7.0 : 6.9
Greece 5.6 9.7 1.6 3.2 4.5 9.5 8.1 6.6 7.5 7.3 : 7.0
Spain 6.0 10.8 0.6 1.9 3.1 8.5 6.9 5.0 6.8 5.8 : 5.9
France 7.2 10.7 0.6 2.9 4.6 8.7 7.5 5.5 7.0 6.4 : 6.2
Ireland 6.9 11.5 0.1 3.2 3.6 8.5 7.1 5.1 6.2 5.7 : 5.7
Italy 6.4 12.3 0.5 3.6 5.1 9.9 8.1 6.4 7.4 6.9 : 6.8
Luxembourg (b) : : : : : 8.1 7.1 4.8 7.0 5.7 : 5.7
Netherlands 4.8 9.6 0.3 2.3 4.2 8.3 7.3 5.1 6.9 6.0 : 5.9
Austria 6.6 12.5 1.2 2.0 4.6 9.3 8.2 5.6 7.7 6.8 : 6.6
Portugal 8.2 12.5 0.7 1.4 3.9 8.5 7.6 5.6 7.0 6.1 : 5.9
Finland 3.8 11.6 0.6 4.0 5.3 9.8 8.3 7.5 7.4 8.9 : 8.3
Euro area (c) 6.2 11.5 0.6 3.1 4.3 9.1 7.7 5.6 7.2 6.6 : 6.5
Czech Republic : : : : 9.2 8.2 5.5 8.1 6.8 : 6.9
Denmark 5.0 9.5 0.1 2.6 4.5 8.7 7.6 5.9 7.0 6.7 : 6.5
Estonia : : : : : 9.7 7.7 7.3 7.1 8.6 : 8.1
Cyprus : : : : : 7.6 6.9 5.9 6.0 6.5 : 6.5
Latvia : : : : : 9.2 8.3 7.3 7.1 7.8 : 7.5
Lithuania : : : : : 10.6 8.7 7.8 8.0 9.4 : 8.9
Hungary : : : : : 8.9 7.9 5.5 7.6 6.8 : 6.6
Malta : : : : : 11.0 8.6 6.9 8.1 7.2 : 7.3
Poland : : : : : 9.6 8.2 6.5 7.6 7.8 : 7.6
Slovenia : : : : : 8.4 7.8 5.2 7.6 7.0 : 6.8
Slovakia : : : : : 10.3 8.7 5.0 8.2 7.0 : 6.9
Sweden 6.0 11.3 -0.4 3.5 3.9 9.3 7.6 6.4 6.9 6.6 : 6.3
United Kingdom 6.5 11.4 0.0 3.0 4.1 9.0 7.3 6.0 6.8 6.5 : 6.5
EU-25 (c) : : : : : : 7.7 5.7 7.2 6.6 : 6.5
EU-15 (c) 6.2 11.5 0.5 3.1 4.2 : : : : : : :
USA 6.7 10.8 -2.2 6.5 5.2 10.8 8.0 7.0 7.4 7.2 : 7.4
Japan 9.1 12.5 -2.3 7.9 6.6 12.8 9.1 8.1 8.2 8.6 : 8.5

(a) Imports to the various markets (incl. EU-markets) weighted according to their share in country's exports.
(b) Included in the figures for Belgium up to 2003.
(c) Intra- and extra-EU trade.

TABLE 54 : Export performance (a) (percentage change on preceding year, 1999-2007)

2005 2006 2007
estimate of forecast of forecast of
1999 2000 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Belgium -1.6 -4.0 -0.9 -1.1 0.1 -1.5 -1.3 -2.9 -0.7 -1.0 : -0.8
Germany -0.6 1.1 5.6 -0.3 -0.9 0.3 -1.0 0.4 -0.9 -0.5 : -0.6
Greece -3.1 -0.9 -3.1 -10.0 -0.3 -10.9 -2.3 0.0 -1.8 -0.4 : -0.1
Spain -0.9 -0.7 3.3 1.4 1.8 -3.8 -0.6 -3.7 -0.7 -3.5 : -3.1
France -3.3 1.4 2.3 -0.9 -5.2 -4.4 -2.0 -2.8 -0.6 -1.8 : -1.3
Ireland 4.5 6.2 4.5 1.0 -7.3 -3.2 -0.9 -2.5 0.1 -0.4 : -0.2
Italy -5.0 -2.6 1.0 -6.3 -6.8 -6.0 -2.8 -6.0 -2.6 -2.5 : -3.3
Luxembourg (b) : : : : : -4.4 : : : : : :
Netherlands 0.8 2.1 1.0 -1.0 -1.4 1.0 -2.7 -1.2 -0.7 -0.9 : -0.6
Austria 1.2 0.5 5.5 2.6 -2.3 2.3 -1.2 -1.1 -0.6 -0.7 : -0.8
Portugal : : 1.3 0.4 1.6 -3.7 -2.7 -4.0 -0.1 -1.1 : -1.0
Finland 3.7 9.9 -0.8 0.2 -3.2 -4.0 -2.6 -3.0 -2.0 -2.8 : -2.7
Euro area (c) -1.5 0.7 3.1 -1.0 -2.5 -1.7 -1.7 -2.0 -1.0 -1.3 : -1.2
Czech Republic : : : : 13.1 4.2 3.8 2.7 3.1 : 2.8
Denmark 2.3 0.4 2.4 3.3 -5.9 -4.2 -3.2 -0.6 -1.7 -1.9 : -2.0
Estonia : : : : : 7.1 5.3 11.6 3.5 7.0 : 4.8
Cyprus : : : : : 2.1 -2.7 8.6 -1.9 -2.5 : -2.5
Latvia : : : : : -1.1 2.9 5.4 3.8 5.0 : 4.9
Lithuania : : : : : -7.3 0.2 1.9 -0.1 0.8 : 0.7
Hungary : : : : : 7.2 5.0 4.9 3.7 3.6 : 3.3
Malta : : : : : -6.9 -4.7 -9.7 -4.3 -6.0 : -4.4
Poland : : : : : 16.7 2.6 -2.2 3.4 -2.6 : -1.5
Slovenia : : : : : 4.1 0.4 4.5 0.3 0.7 : 0.7
Slovakia : : : : : 2.7 3.5 2.0 4.5 3.1 : 7.5
Sweden -1.0 0.7 -1.7 -1.5 1.0 0.5 -1.0 -2.3 -1.3 -0.7 : -0.2
United Kingdom -2.8 0.7 2.7 -4.6 -4.2 -6.7 -0.7 0.3 -1.3 -0.7 : -1.1
EU-25 (c) : : : : : : -1.2 -1.4 -0.7 -1.0 : -0.9
EU-15 (c) -1.6 0.6 2.8 -1.2 -2.5 : : : : : : :
USA -2.5 0.4 -4.0 -9.8 -3.2 -1.7 -0.6 0.5 2.2 2.6 : 0.8
Japan -13.4 -0.1 -4.0 0.1 2.4 1.2 -1.0 -2.3 0.0 -2.5 : -1.8

(a) Index for exports divided by an index for growth of markets.

(b) Included in the figures for Belgium up to 2003.
(c) Intra- and extra-EU trade.

147
ANNEX

TABLE 55 : World GDP, volume (percentage change on preceding year, 2000-2007) 07.11.2005
2005 2006 2007
estimate of forecast of forecast of
(a) 2000 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
EU-25 21.3 3.8 1.9 1.2 1.2 2.4 2.0 1.5 2.3 2.1 : 2.4
Euro area 15.5 3.8 1.9 0.9 0.7 2.1 1.6 1.3 2.1 1.9 : 2.1
Belgium 0.6 3.9 1.0 1.5 0.9 2.6 2.2 1.4 2.3 2.1 : 2.0
Czech Republic 0.2 3.9 2.6 1.5 3.2 4.4 4.0 4.8 4.2 4.4 : 4.3
Denmark 0.4 3.5 0.7 0.5 0.6 2.1 2.3 2.7 2.1 2.3 : 2.1
G ermany 4.6 3.2 1.2 0.1 -0.2 1.6 0.8 0.8 1.6 1.2 : 1.6
Estonia 0.0 7.9 6.5 7.2 6.7 7.8 6.0 8.4 6.2 7.2 : 7.4
G reece 0.3 4.5 4.6 3.8 4.6 4.7 2.9 3.5 3.1 3.4 : 3.4
Spain 1.7 5.1 3.5 2.7 3.0 3.1 2.7 3.4 2.7 3.2 : 3.0
France 3.4 4.1 2.1 1.2 0.8 2.3 2.0 1.5 2.2 1.8 : 2.3
Ireland 0.3 9.2 6.2 6.1 4.4 4.5 4.9 4.4 5.1 4.8 : 5.0
Italy 2.8 3.0 1.8 0.4 0.3 1.2 1.2 0.2 1.7 1.5 : 1.4
Cyprus 0.0 5.0 4.1 2.1 1.9 3.8 3.9 3.9 4.2 4.0 : 4.2
Latvia 0.0 6.9 8.0 6.4 7.2 8.3 7.2 9.1 6.9 7.7 : 7.1
Lithuania 0.0 3.9 7.2 6.8 10.5 7.0 6.4 7.0 5.9 6.2 : 5.8
Luxembourg 0.1 9.0 1.5 2.5 2.9 4.5 3.8 4.2 4.0 4.4 : 4.5
Hungary 0.2 5.2 3.8 3.5 2.9 4.2 3.9 3.7 3.8 3.9 : 3.9
Malta 0.0 6.4 0.2 0.8 -1.9 0.4 1.7 0.8 1.9 0.7 : 1.1
Netherlands 1.0 3.5 1.4 0.1 -0.1 1.7 1.0 0.5 2.0 2.0 : 2.4
Austria 0.5 3.4 0.8 1.0 1.4 2.4 2.1 1.7 2.1 1.9 : 2.2
Poland 0.4 4.0 1.0 1.4 3.8 5.3 4.4 3.4 4.5 4.3 : 4.5
Portugal 0.3 3.8 2.0 0.5 -1.2 1.2 1.1 0.4 1.7 0.8 : 1.2
Slovenia 0.1 4.1 2.7 3.5 2.7 4.2 3.7 3.8 4.0 4.0 : 4.2
Slovakia 0.1 2.0 3.8 4.6 4.5 5.5 4.9 5.1 5.2 5.5 : 6.3
Finland 0.3 5.0 1.0 2.2 2.4 3.6 3.3 1.9 2.9 3.5 : 3.1
Sweden 0.6 4.3 1.0 2.0 1.5 3.6 3.0 2.5 2.8 3.0 : 2.8
United Kingdom 3.5 4.0 2.2 2.0 2.5 3.2 2.8 1.6 2.8 2.3 : 2.8
Acc/Cand Countries 1.5 6.2 -4.3 7.0 5.4 8.2 5.1 5.0 5.0 5.2 : 5.1
- Bulgaria 0.1 5.4 4.1 4.9 4.5 5.6 6.0 6.0 4.5 5.5 : 5.5
- Croatia 0.1 2.9 4.4 5.2 4.3 3.8 4.0 3.6 4.3 4.0 : 4.4
- Romania 0.3 2.1 5.7 5.0 4.9 8.3 5.5 5.2 5.1 5.3 : 5.0
- Turkey 1.0 7.4 -7.5 7.9 5.8 8.9 5.0 5.0 5.1 5.2 : 5.1
USA 21.1 3.7 0.8 1.6 2.7 4.2 3.6 3.5 3.0 3.2 : 2.7
Japan 6.9 2.4 0.2 -0.3 1.4 2.7 1.1 2.5 1.7 2.2 : 1.8
Canada 1.9 5.3 1.8 3.4 2.0 2.9 2.6 2.7 2.9 2.9 : 3.0
Norway 0.3 2.8 2.7 1.1 0.4 2.9 3.8 3.9 2.9 3.0 : 1.8
Switzerland 0.4 3.6 1.0 0.3 -0.3 2.1 1.3 0.9 1.7 1.6 : 1.5
Iceland 0.0 5.7 2.6 -2.1 4.2 5.2 5.1 6.0 4.5 5.9 : 5.5
Australia 1.1 2.1 3.9 3.2 3.8 2.9 3.3 2.7 3.3 3.4 : 3.5
New Zealand 0.2 2.3 3.5 4.6 3.6 4.4 2.3 2.5 2.7 2.8 : 2.9
Industrialised countries 54.9 3.7 1.1 1.4 2.0 3.3 2.6 2.6 2.6 2.7 : 2.5
Others 45.1 6.1 4.0 4.5 6.0 7.4 6.2 6.4 6.1 6.3 : 6.1
CIS 3.5 9.0 6.4 5.4 7.9 8.3 6.5 6.8 5.8 6.9 : 6.4
- Russia 2.4 10.0 5.1 4.7 7.3 7.1 6.0 6.0 5.3 6.3 : 5.8
- Other 1.2 6.8 9.2 6.8 9.1 10.6 7.5 8.3 7.0 8.0 : 7.5
MENA 3.9 5.1 1.1 1.8 3.0 8.6 5.4 5.2 4.8 5.1 : 4.8
Other emerging markets 37.7 5.9 4.1 4.7 6.1 7.2 6.3 6.5 6.3 6.4 : 6.2
Asia 27.9 6.5 5.2 6.3 7.5 7.8 7.1 7.2 7.1 7.2 : 7.0
- China 13.4 8.0 7.5 8.3 9.3 9.5 8.6 9.3 8.4 8.7 : 8.2
- India 6.0 3.9 5.1 4.6 8.3 7.3 6.5 6.8 6.8 6.8 : 7.0
- Hong Kong 0.4 10.2 0.5 1.9 3.2 8.1 4.5 6.3 4.5 5.1 : 4.4
- Korea 1.9 8.5 3.8 7.0 3.1 4.6 3.8 3.8 4.3 4.8 : 5.0
- Indonesia 1.5 4.9 3.5 3.6 4.5 5.1 5.2 5.1 5.5 5.3 : 5.5
Latin America 7.6 4.3 0.6 -0.6 1.9 5.5 3.9 4.0 3.6 3.6 : 3.6
- Brazil 2.7 4.4 1.3 1.9 0.5 4.9 3.7 3.2 3.7 3.6 : 3.6
- Mexico 1.8 6.6 0.0 0.8 1.4 4.4 3.6 3.2 3.5 3.4 : 3.4
Africa 2.3 3.4 2.8 3.0 3.0 4.3 5.7 5.0 6.1 6.0 : 5.5
World 100.0 4.7 2.4 2.8 3.8 5.2 4.2 4.3 4.1 4.3 : 4.2
World excluding EU-25 78.7 5.0 2.6 3.3 4.5 5.9 4.8 5.1 4.6 4.9 : 4.6
World excluding euro area 84.5 4.9 2.5 3.2 4.4 5.7 4.7 4.9 4.5 4.8 : 4.5
(a) Relative weights, based on GDP (at constant prices and pps) in 2004.

148
 ANNEX
TABLE 56 : World exports of goods, volume (percentage change on preceding year, 2000-2007) 07.11.2005
2005 2006 2007
estimate of forecast of forecast of
(a) 2000 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
EU-25 (b) 40.5 12.9 3.8 2.2 2.4 7.8 6.4 4.2 6.4 5.5 : 5.5
Euro area (b) 31.4 12.3 3.7 2.1 1.7 7.2 5.9 3.5 6.1 5.2 : 5.2
Acc/Cand Countries 1.2 15.8 18.7 16.8 18.3 15.9 13.2 7.6 13.2 8.1 : 8.9
- Bulgaria 0.1 : : : : : 10.0 11.0 10.0 11.5 : 12.0
- Croatia 0.1 : : : : : 9.9 5.8 11.0 6.7 : 6.3
- Romania 0.3 24.7 10.9 20.4 11.0 15.8 13.5 6.2 12.5 7.5 : 9.5
- Turkey 0.8 12.4 21.6 15.5 21.0 15.9 14.0 7.8 14.0 8.0 : 8.5
USA 9.2 11.2 -6.1 -4.0 1.8 8.9 7.4 7.5 9.8 10.0 : 8.3
Japan 5.9 12.4 -6.2 8.1 9.1 14.2 8.0 5.6 8.2 5.9 : 6.5
Canada 3.7 9.2 -3.5 0.7 -2.2 5.4 3.3 2.3 4.5 4.1 : 5.0
Norway 0.9 2.1 7.1 0.4 2.6 -0.8 6.5 5.4 6.6 4.1 : 2.4
Switzerland 1.4 11.6 1.4 1.1 -0.2 8.0 7.4 4.5 7.3 5.5 : 4.4
Iceland 0.0 -8.0 -12.2 7.5 4.5 18.4 5.1 8.2 5.8 6.7 : 5.8
Australia 1.0 9.5 1.1 0.7 0.1 2.8 6.5 4.3 6.0 6.0 : 6.8
New Zealand 0.2 5.3 2.0 6.7 2.6 6.9 6.5 -0.2 6.5 6.0 : 6.5
Industrialised countries 64.1 12.2 1.2 2.0 2.9 8.3 6.7 4.8 7.1 6.2 : 6.0
Others 35.9 17.7 -0.7 8.5 13.1 16.9 10.2 11.2 8.8 9.5 : 9.1
CIS 3.0 42.5 -1.0 -2.0 13.5 20.1 7.9 17.7 4.2 8.1 : 7.9
- Russia 2.1 18.1 -6.1 0.7 11.1 14.5 7.0 18.0 2.5 5.0 : 4.5
- Other 0.9 310.1 15.2 -8.8 20.1 34.9 10.0 17.0 8.0 15.0 : 15.0
MENA 4.4 8.1 0.6 -1.4 7.4 7.1 6.3 6.6 4.2 5.3 : 5.3
Other emerging markets 28.5 16.5 -0.8 11.2 14.0 18.1 11.1 11.3 10.0 10.4 : 9.8
Asia 21.8 16.7 -1.0 15.0 16.3 19.1 12.1 12.9 10.8 11.4 : 10.7
- China 6.7 26.0 16.2 25.6 32.3 27.1 21.0 25.0 17.5 18.0 : 16.0
- India 0.8 20.1 8.5 16.6 14.0 18.0 15.0 9.5 14.0 12.0 : 12.0
- Hong Kong 2.9 16.8 -3.7 8.3 13.2 14.7 10.5 10.0 8.5 9.0 : 8.0
- Korea 2.9 19.4 -13.0 30.5 16.5 21.8 7.5 9.7 7.6 8.6 : 8.0
- Indonesia 0.8 -17.2 -2.4 -1.3 -0.9 4.3 9.5 7.5 12.0 5.5 : 5.5
Latin America 5.4 16.9 -0.2 -0.9 3.2 12.3 7.6 6.0 7.1 6.3 : 6.5
- Brazil 1.1 7.0 11.4 8.4 8.6 19.3 8.0 6.0 6.5 6.5 : 6.5
- Mexico 2.1 16.6 -3.5 1.4 1.6 7.4 7.0 5.0 7.0 5.5 : 6.0
Africa 1.3 10.8 -0.3 -3.6 19.0 24.1 9.0 5.0 9.0 9.0 : 8.0
World 100.0 14.1 0.6 4.3 6.6 11.4 7.8 7.1 7.7 7.4 : 7.1
World excluding EU-25 59.5 15.0 -1.6 5.8 9.4 13.9 8.9 9.1 8.6 8.6 : 8.2
World excluding euro area 68.6 15.0 -0.9 5.3 8.8 13.3 8.7 8.7 8.4 8.4 : 8.0
(a) Relative weights, based on exports (at current prices and current exchange rates) in 2004.
(b) Intra- and extra-EU trade.

TABLE 57 : Export shares in EU trade (goods only - 2004)

Acceding/ Other
Candidate Industr. Rest Latin
EU-25 Countries USA Japan Canada Countries CIS M ENA Asia America Africa World
EU-25 68.3 2.4 8.1 1.5 0.8 4.5 2.2 3.8 5.2 1.8 1.3 100
Belgium 77.8 1.3 6.5 1.1 0.6 2.0 0.9 3.1 4.6 1.0 1.0 100
Czech Republic 83.8 3.0 3.1 0.5 0.3 2.4 2.4 1.6 2.0 0.6 0.4 100
Denmark 68.5 1.0 5.7 4.0 1.2 8.1 1.8 2.5 5.0 1.3 0.9 100
G ermany 64.6 2.7 8.9 1.8 0.7 5.4 2.8 3.0 6.8 2.0 1.2 100
Estonia 74.6 0.6 5.5 0.3 0.3 4.1 11.5 0.5 1.5 0.6 0.5 100
G reece 60.1 15.6 5.8 0.5 0.7 2.1 3.3 7.0 2.8 0.8 1.3 100
Spain 75.2 2.5 4.2 0.8 0.5 2.2 0.9 5.2 2.5 4.8 1.2 100
France 67.1 2.0 6.9 1.6 0.8 4.3 1.4 6.8 5.0 1.8 2.3 100
Ireland 63.2 0.5 19.9 2.8 0.4 5.0 0.3 1.3 4.9 1.0 0.7 100
Italy 60.4 4.8 8.1 1.6 0.9 5.8 2.6 6.3 5.6 2.7 1.2 100
Cyprus 64.9 2.8 1.8 2.2 0.2 1.0 2.8 17.6 3.5 0.4 2.8 100
Latvia 75.9 0.1 7.5 0.7 0.2 4.1 7.8 1.0 2.0 0.6 0.1 100
Lithuania 61.3 2.1 5.3 0.2 1.3 13.1 15.2 0.1 0.8 0.1 0.4 100
Luxembourg 90.4 0.7 1.9 0.3 0.4 1.9 0.8 1.0 1.6 0.8 0.4 100
Hungary 80.7 6.0 3.1 0.6 0.1 1.7 3.2 2.2 1.5 0.5 0.3 100
Malta 44.5 2.4 12.4 2.0 0.7 0.7 0.1 5.2 30.3 0.7 0.9 100
Netherlands 81.0 1.4 4.4 0.8 0.4 2.7 1.6 2.3 3.3 1.0 1.2 100
Austria 72.4 4.2 6.1 1.2 0.9 5.9 2.4 1.8 3.6 0.9 0.7 100
Poland 79.1 3.1 2.8 0.3 0.5 2.2 7.9 1.2 1.6 0.8 0.6 100
Portugal 80.8 0.9 6.1 0.3 0.6 1.7 0.3 1.8 2.2 1.2 4.0 100
Slovenia 73.3 11.1 3.7 0.3 0.3 2.3 5.1 2.1 1.2 0.5 0.3 100
Slovakia 85.7 2.9 4.5 0.5 0.4 1.3 2.8 0.5 0.9 0.2 0.3 100
Finland 58.3 1.1 6.5 2.0 1.0 5.3 9.9 4.7 8.0 2.0 1.2 100
Sweden 59.1 1.3 10.8 1.9 1.1 11.4 2.1 3.2 6.0 2.0 1.1 100
United Kingdom 57.0 1.6 15.7 2.1 1.8 4.4 1.3 5.0 7.4 1.5 2.2 100

149
ANNEX

TABLE 58 : World imports of goods, volume (percentage change on preceding year, 2000-2007) 07.11.2005
2005 2006 2007
estimate of forecast of forecast of
(a) 2000 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
EU-25 (b) 39.8 11.7 1.7 1.6 4.1 8.0 7.0 4.2 6.8 5.4 : 5.6
Euro area (b) 29.4 11.3 1.1 0.8 3.8 7.7 6.4 4.0 6.7 5.2 : 5.3
Acc/Cand Countries 1.7 31.6 -12.2 16.2 25.0 22.5 13.8 10.4 13.2 9.3 : 8.9
- Bulgaria 0.2 : : : : : 14.0 14.0 10.5 12.0 : 12.0
- Croatia 0.2 : : : : : 6.5 4.4 7.7 5.0 : 5.5
- Romania 0.4 29.5 22.1 13.0 17.3 18.5 18.0 16.2 14.0 14.0 : 12.0
- Turkey 1.0 32.3 -23.9 17.3 27.6 23.9 13.8 9.0 14.2 8.0 : 8.0
USA 16.9 13.5 -3.2 3.7 4.9 11.0 7.5 6.4 4.6 5.8 : 5.1
Japan 4.4 11.9 0.1 1.1 3.8 7.7 7.1 6.4 6.2 7.8 : 9.1
Canada 3.2 8.6 -5.6 1.5 3.4 8.3 7.5 6.8 6.3 5.6 : 6.3
Norway 0.6 3.0 -0.5 2.1 3.2 10.7 9.9 8.9 8.0 6.6 : 3.9
Switzerland 1.3 10.2 1.8 -3.0 1.9 6.4 10.1 5.2 8.6 6.5 : 4.5
Iceland 0.0 -2.4 -27.3 -4.8 15.6 20.1 11.0 16.3 8.1 6.4 : 6.0
Australia 1.2 5.5 -5.3 13.6 11.6 14.6 4.5 12.9 3.5 7.2 : 7.8
New Zealand 0.2 -2.7 -4.3 16.6 11.2 15.0 11.0 6.1 11.0 7.1 : 8.0
Industrialised countries 69.3 12.3 -0.4 2.6 4.9 9.2 7.3 5.4 6.4 5.9 : 5.8
Others 30.7 17.6 -1.3 10.0 13.4 16.8 10.3 10.2 9.8 10.9 : 10.6
CIS 1.9 28.0 12.5 8.3 28.6 22.1 12.1 19.2 9.2 22.8 : 18.9
- Russia 1.1 -4.6 15.4 8.9 18.6 16.9 12.2 17.0 9.0 25.0 : 18.0
- Other 0.8 184.4 7.8 7.2 46.1 29.6 12.0 22.0 9.5 20.0 : 20.0
MENA 3.0 11.8 10.2 5.2 2.7 0.8 6.7 10.6 5.8 7.5 : 7.2
Other emerging markets 25.8 17.5 -3.7 10.6 13.4 18.3 10.7 9.5 10.4 10.4 : 10.4
Asia 19.9 19.1 -5.4 14.3 15.0 19.2 11.4 10.2 11.3 11.1 : 11.3
- China 6.0 29.4 13.6 24.3 34.7 26.4 20.0 15.7 18.2 17.8 : 17.5
- India 1.1 5.8 1.4 4.3 21.4 22.8 12.0 9.5 13.0 10.0 : 10.5
- Hong Kong 3.0 18.1 -2.4 7.5 11.9 13.7 8.3 9.2 8.1 8.6 : 7.7
- Korea 2.5 17.0 -23.2 41.1 7.6 11.8 4.5 5.3 5.0 7.5 : 8.2
- Indonesia 0.6 24.6 -9.6 4.7 6.2 14.7 14.7 13.5 14.0 7.0 : 7.7
Latin America 4.7 14.5 -0.5 -2.1 1.9 11.5 8.6 7.1 7.6 7.3 : 6.8
- Brazil 0.7 8.5 0.0 -2.5 2.9 10.4 10.0 7.0 8.0 7.5 : 7.5
- Mexico 2.2 21.4 -2.0 1.3 -1.3 8.8 9.0 6.5 7.5 7.0 : 6.5
Africa 1.2 3.2 12.0 -1.1 33.3 29.2 7.0 8.0 7.0 10.0 : 9.0
World 100.0 13.9 -0.7 4.9 7.5 11.6 8.2 6.9 7.4 7.4 : 7.3
World excluding EU-25 60.2 15.4 -2.3 7.0 9.7 13.9 9.1 8.6 7.7 8.7 : 8.4
World excluding euro area 70.6 15.0 -1.4 6.6 9.0 13.2 9.0 8.1 7.6 8.3 : 8.1
(a) Relative weights, based on imports (at current prices and current exchange rates) in 2004.
(b) Intra- and extra-EU trade.

TABLE 59 : Import shares in EU trade (goods only - 2004)

Acceding/ Other
Candidate Industr. Rest Latin
EU-25 Countries USA Japan Canada Countries CIS M ENA Asia America Africa World
EU-25 69.1 1.7 4.9 2.5 0.5 4.3 3.1 3.0 8.2 1.8 1.1 100
Belgium 74.7 0.9 6.5 2.8 0.5 1.9 1.3 2.8 6.3 1.1 1.3 100
Czech Republic 82.5 0.8 1.4 2.1 0.1 2.5 5.1 0.8 4.4 0.3 0.2 100
Denmark 76.4 1.2 3.5 1.4 0.4 7.0 0.8 0.4 7.3 1.3 0.3 100
G ermany 69.5 2.0 4.6 2.8 0.3 5.3 2.7 1.6 9.0 1.6 0.8 100
Estonia 64.7 0.5 1.4 1.6 0.1 1.2 23.8 0.1 4.2 0.6 1.9 100
G reece 64.0 4.4 4.0 2.5 0.4 1.9 4.6 7.4 9.1 1.2 0.5 100
Spain 71.8 1.3 2.6 2.0 0.4 2.7 1.6 5.8 6.3 3.3 2.3 100
France 72.8 1.3 4.7 1.8 0.4 4.5 1.7 4.2 5.9 1.4 1.3 100
Ireland 69.9 0.8 13.0 3.2 0.6 2.0 0.7 0.4 8.2 0.7 0.5 100
Italy 64.3 3.7 3.2 1.9 0.4 4.2 3.9 7.7 7.2 2.3 1.1 100
Cyprus 44.5 2.4 1.1 5.8 0.2 1.0 31.0 6.1 6.6 1.1 0.2 100
Latvia 62.9 0.7 1.4 0.6 0.3 2.2 28.0 0.3 3.3 0.3 0.0 100
Lithuania 62.0 1.2 2.3 0.3 0.1 1.7 27.5 0.3 3.8 0.7 0.3 100
Luxembourg 83.8 0.1 3.5 1.1 0.4 1.6 0.5 0.3 8.6 0.0 0.1 100
Hungary 71.8 2.5 2.1 2.7 0.1 1.7 7.3 0.2 11.2 0.3 0.1 100
Malta 60.5 4.0 3.5 2.2 0.2 2.0 3.6 1.5 21.2 1.1 0.3 100
Netherlands 55.5 0.9 7.8 4.3 0.5 3.9 3.9 3.4 14.8 3.8 1.3 100
Austria 83.1 2.6 1.8 1.2 0.2 4.5 2.2 0.9 2.9 0.3 0.4 100
Poland 77.6 1.3 1.2 1.1 0.2 2.1 9.6 0.5 4.8 1.1 0.5 100
Portugal 81.2 0.8 1.8 1.6 0.2 1.8 1.4 3.2 2.8 2.9 2.2 100
Slovenia 84.1 5.6 1.2 0.7 0.2 1.7 1.6 0.7 2.9 1.2 0.1 100
Slovakia 82.7 0.9 0.5 0.4 0.1 1.1 12.2 0.1 1.7 0.2 0.1 100
Finland 65.6 0.5 3.8 3.1 0.4 3.8 11.4 0.3 9.1 1.4 0.5 100
Sweden 77.0 0.9 3.4 1.9 0.3 7.1 1.9 0.7 5.1 1.3 0.3 100
United Kingdom 61.5 1.6 8.0 3.4 1.1 6.5 1.4 2.0 11.4 1.5 1.5 100

150
 ANNEX
TABLE 60 : World trade balances (fob-fob, bn. US dollars, 1999-2007) 07.11.2005
2005 2006 2007
estimate of forecast of forecast of
1999 2000 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
EU-25 54.9 -3.6 50.6 102.1 86.8 65.8 27.4 20.4 14.1 -4.3 : -9.1
EU-25, adjusted ¹ : : -42.5 5.8 -5.3 -33.8 -65.8 -79.8 -79.8 -101.2 : -106.9
Euro area 103.8 52.3 110.2 171.2 168.8 176.6 159.3 125.5 156.0 98.2 : 94.9
Euro area, adjusted ¹ 59.9 7.0 65.6 121.5 116.2 127.9 116.4 76.4 112.9 50.7 : 46.9
Acc/Cand Countries : : : : -32.0 -44.1 -58.2 -52.4 -66.5 -60.2 : -66.0
USA -348.3 -459.2 -436.7 -491.7 -559.6 -677.7 -752.2 -781.5 -763.8 -828.5 : -857.7
Japan 123.4 116.6 70.2 93.8 105.8 133.0 157.7 123.8 192.0 119.8 : 141.1
Canada 28.3 45.1 45.2 36.4 41.1 50.8 54.1 54.5 52.0 70.6 : 70.7
Norway 10.7 26.0 25.8 23.4 27.2 32.3 54.0 46.4 52.5 54.6 : 63.3
Switzerland -0.2 -2.5 -2.8 3.3 3.4 5.5 -2.7 0.9 -4.3 -1.6 : -0.6
Iceland -0.3 -0.5 -0.1 0.1 -0.2 -0.4 -0.7 -0.9 -0.8 -1.0 : -1.1
Australia -9.8 -4.8 1.7 -5.5 -15.3 -18.0 -16.1 -17.7 -18.0 -19.6 : -21.5
New Zealand -0.4 0.7 1.5 0.2 -0.5 -1.4 -3.2 -2.9 -4.5 -2.5 : -2.6
Industrialised countries : : : : -343.4 -454.3 -539.9 -609.4 -547.4 -672.7 : -683.3
Others 126.6 204.3 143.1 175.4 225.2 285.6 601.2 433.2 576.1 505.5 : 504.0
CIS -0.2 3.5 1.9 2.9 2.6 7.3 110.7 14.4 96.9 15.2 : 8.8
MENA 40.1 112.8 73.6 76.4 98.8 129.7 288.0 256.6 266.3 311.5 : 309.8
Other emerging markets 86.7 87.9 67.5 96.1 123.8 148.6 202.6 162.1 212.9 178.7 : 185.3
Asia 84.9 61.9 59.0 71.5 94.1 107.5 98.5 99.4 110.3 100.0 : 103.4
Latin America -2.6 10.2 1.1 15.9 23.0 31.5 70.8 41.0 68.2 52.3 : 58.5
Africa 4.3 15.8 7.4 8.7 6.7 9.6 33.2 21.8 34.4 26.5 : 23.5
World : : : : -118.2 -168.7 61.3 -176.3 28.7 -167.3 : -179.3
¹ See note 8 on concepts and sources.

TABLE 61 : World current account balances (bn. US dollars, 1999-2007)

2005 2006 2007
estimate of forecast of forecast of
1999 2000 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
EU-25 -26.1 -75.4 -27.4 28.6 12.7 11.1 -2.4 -39.0 -2.0 -57.3 : -48.9
EU-25, adjusted ¹ : : -65.6 0.5 -8.0 -23.0 -57.4 -73.2 -57.4 -90.5 : -82.3
Euro area 17.6 -30.6 4.8 53.7 37.2 52.4 57.3 4.5 64.1 -13.6 : -10.4
Euro area, adjusted ¹ -32.5 -75.8 -3.0 61.1 23.1 58.1 48.4 10.1 55.2 -8.2 : -4.9
Acc/Cand Countries : : : : -15.9 -26.9 -30.7 -35.5 -34.9 -41.2 : -45.1
USA -273.9 -396.6 -370.4 -458.3 -504.4 -651.7 -739.0 -767.7 -758.4 -830.0 : -891.1
Japan 114.9 119.5 87.7 113.0 136.1 172.2 187.9 164.3 215.0 146.9 : 157.9
Canada 2.4 23.6 21.8 16.0 14.8 23.6 25.8 23.5 25.3 37.5 : 40.4
Norway 8.5 26.0 26.2 24.4 28.3 34.3 52.8 47.1 51.5 53.1 : 58.6
Switzerland 28.4 29.2 20.5 20.3 38.6 38.8 29.5 40.5 24.6 36.9 : 34.9
Iceland -0.6 -0.8 -0.3 -0.1 0.9 1.9 -0.5 -1.3 0.4 -1.4 : -1.5
Australia -22.3 -15.4 -8.4 -16.8 -30.4 -39.5 -33.1 -38.8 -31.5 -40.9 : -43.0
New Zealand -3.5 -2.5 -1.3 -2.2 -3.4 -6.2 -5.7 -7.1 -6.0 -6.5 : -6.3
Industrialised countries : : : : -322.6 -442.4 -515.3 -614.0 -516.0 -703.1 : -744.1
Others 77.7 134.0 89.4 120.9 181.9 231.2 510.9 423.7 466.6 488.9 : 486.9
CIS -0.5 1.8 -0.4 1.1 0.8 4.1 67.7 8.0 52.2 6.0 : -4.0
MENA 14.9 69.8 38.8 31.3 61.5 97.6 255.9 266.3 234.3 322.7 : 323.7
Other emerging markets 63.3 62.3 51.0 88.4 119.5 129.4 187.3 149.4 180.1 160.2 : 167.2
Asia 88.1 64.3 67.6 85.7 114.3 122.1 155.2 123.1 149.9 123.7 : 132.1
Latin America -16.9 -4.6 -12.1 5.9 11.8 13.0 11.8 18.4 9.3 29.5 : 35.5
Africa -8.0 2.6 -4.5 -3.2 -6.6 -5.7 20.2 7.9 20.9 7.1 : -0.4
World : : : : -140.7 -211.2 -4.5 -190.3 -49.4 -214.2 : -257.2
¹ See note 8 on concepts and sources.

TABLE 62 : Primary commodity prices (in US dollars, percentage change on preceding year, 1999-2007)
2005 2006 2007
SITC estimate of forecast of forecast of
Classification 1999 2000 2001 2002 2003 2004 III-2005 XI-2005 III-2005 XI-2005 III-2005 XI-2005
Food (0 + 1) -10.8 0.4 0.3 0.5 2.0 7.1 1.5 8.4 3.2 2.4 : 1.5
Basic materials (2 + 4) -3.7 5.4 -7.0 1.0 8.6 19.9 1.2 7.0 -3.0 0.8 : -2.0
- of which :
Agricultures non-food -5.1 1.5 -5.2 4.6 7.3 9.8 -3.3 -0.2 -0.3 2.9 : 0.3
- of which :
Wood and pulp 9.0 3.4 -10.7 -3.3 6.8 13.3 4.5 1.9 -1.6 -0.4 : -1.3
Minerals and metals -1.6 11.4 -9.6 -4.2 10.6 35.5 6.7 16.2 -6.1 -1.4 : -4.6
Fuel products (3) 23.2 47.5 -8.9 -0.3 12.7 29.9 31.2 41.2 -5.2 10.9 : -1.6
- of which :
Crude petroleum 41.1 59.1 -12.4 0.2 14.8 31.6 34.4 45.3 -5.7 11.6 : -1.8
Primary commodities
- Total excluding fuels -6.2 3.7 -4.6 0.8 6.3 15.7 1.3 7.4 -1.1 1.3 : -0.9
- Total including fuels 4.8 23.5 -7.2 0.3 9.6 23.2 18.0 26.3 -3.7 7.3 : -1.4
Crude petroleum - price per barrel (us dollar)
Brent 17.9 28.5 25.0 25.0 28.8 37.8 50.9 55.0 48.0 61.4 : 60.3

151
ANNEX

Note on concepts and sources

1. The directorate general for economic and financial affairs (DG 9. Tables 37, 38, 39 and 42 are based on government deficit and debt
ECFIN) produces, under its own responsibility, short-term economic data for the period 2001-2004, as transmitted by Member States to
forecasts twice a year: in the spring and in the autumn. These the European Commission in September 2005. In publishing these
forecasts cover the principal macroeconomic aggregates for the data, Eurostat has indicated that, for certain Member States (the
Member States, the Acceding and Candidate Countries, the Czech Republic, Greece and Portugal), it “has reservations on the
European Union as a whole, the euro area and the international quality of the data”. The data are according to the ESA95 system of
environment. national accounts. Interest expenditure includes settlements under
swap arrangements and forward rate agreements (Tables 35, 37, 38
2. Data for 2005, 2006 and 2007 are forecasts. The sources for all and 40). All Member States are in the process of revising their
tables are the Commission services, except where it is stated national accounts. Though no significant impact is expected on
otherwise. In general, the historical data for the Member States are deficit and debt figures, the expected upward revision of GDP levels
based on the ESA 95 system. The forecasts for 10 Member States by 1-2% typically leads to marginal downward revision of deficit
(namely CZ, DE, ES, FR, IE, NL, AT, PL, PT and SI) have been and debt ratios. However, it should be noted that the revisions in
made using chain-linked volume measures (based on previous year’s GDP following FISIM allocations (financial services indirectly
prices). For the USA and Japan the definitions are as in the SNA. measured) will only be taken into consideration for the calculations
3. Tables 5 and 6 on domestic demand and final demand, respectively, of the deficit- and debt- to-GDP ratios in spring 2006, although
present data including inventories. FISIM allocations have been implemented by 10 Member States
already (namely DK, DE, EE, ES, FR, IE, NL, AT, FI and SI).
4. In Table 16, the data are based on the national index for USA and
Japan, and for EU Member States and the aggregates prior to 1996. 10. The allocation of mobile phone licences (UMTS) impacts strongly
on the general government accounts for some countries in 2000-
5. The potential output gap is calculated with reference to potential 2005. Tables 35, 37 and 39 include the amounts from the sale of the
output as estimated via a production function, where the increase in licences, while the cyclically adjusted balances in tables 40 and 41
the capital stock and the difference between actual unemployment exclude these amounts. The amounts in bn of national currency are
and the NAIRU play a key role. Compared to earlier forecasts, the for 2000: DE 50.8, ES 0.5, IT 13.8, NL 2.7, AT 0.8, PT 0.4,
labour component has been replaced by average hours worked per UK 22.5, EU25 105.9 and euro area 69.1. For 2001: BE 0.5, CZ 7.4,
year and person in employment (thereby also including self- DK 3.2, EL 0.6, FR 1.2, PL 3.0, SI 21.8, EU25 3.8 and euro
employment) in absolute level terms in the autumn 2005 economic area 2.3. For 2002: FR 0.6, IE 0.2, EU25 0.8 and euro area 0.8. For
forecast. The cyclical adjustment of budgetary balances is based on 2003: EE 0.2. For 2005: SI 9.0.
this concept.
11. Second pillar pension funds are included in the general government
6. Employment data are based on numbers of persons employed. The sector in the following Member States ( with the estimated effect on
concept of full-time equivalent (FTE) is used for Germany, Spain, the deficit as % of GDP indicated in brackets): DK (1.1 in 2001, 1.0
France, Italy, the Netherlands and Estonia. Tables 21-27 and 31-32 in 2002, 1.1 in 2003, 1.0 in 2004-2007), HU (0.7 in 2001-2002, 0.9
use data on FTE for these countries. in 2003, 1.1 in 2004, 1.3 in 2005 and 1.4 in 2006-2007), PL (1.5 in
2001, 1.9 in 2002, 1.6 in 2003, 1.9 in 2004, 2.0 in 2005-2007), SK
7. The nominal short-term interest rates are defined as the 3-month (0.8 in 2005, 1.3 in 2006 and 1.4 in 2007) and SE (0.9 in 2001-2003,
inter-bank rates. The nominal long-term interest rates are defined as 1.0 in 2004-2006.
the yield on the central government benchmark 10-year bond from
1995. 12. German, EU25 and euro-area figures are for unified Germany from
1991 onwards; from 1992 onwards for percentage changes.
8. EU25 and euro-area data are aggregated using exchange rates.
World GDP is aggregated using Purchasing Power Standards (PPS). 13. With respect to the RAMS (recently-acceded Member States), which
In the tables on world trade and international payments, the are currently in a transition phase, the quality of statistical data may
aggregation is carried out on the basis of current exchange rates. not always be directly comparable to the EU15 Member States.
Tables 48-52, 60 and 61 show also EU25 and euro area "adjusted"
balances. Theoretically, balances of EU25 and euro area vis-à-vis 14. Geographical zones are defined as follows :
third countries should be identical to the sum of the balances of the Euro area:
individual countries in the EU25 or the euro area. However, intra- EUR12 (EU15 excluding DK, SE and the UK);
EU25 or intra-euro-area balances are non-zero because of reporting Acceding countries:
errors. Bulgaria and Romania
Candidate countries:
The creation of the internal market in 1993 reduced border controls Croatia and Turkey.
and formalities, and accordingly the scope and precision of intra-EU Industrialised Countries:
trade coverage. Typically, intra-EU imports are underestimated EU25, Acceding and Candidate Countries, USA, Japan,
compared to intra-EU exports, leading to an overestimation of the Canada, Norway, Switzerland, Iceland, Australia and New
surplus. For the past, the "adjusted" balances are Eurostat (for Zealand.
EU25) estimates and ECB (for euro area) estimates. For the future, MENA (Middle East and Northern Africa):
they are ECFIN's forecasts based on the extrapolation of the Algeria, Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait,
discrepancies observed in 2004. Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria,
Tunisia, United Arab Emirates and Yemen.
Asia :
All countries except Japan and the Asian MENA countries.
Latin America :
All countries.
Africa :
All countries except the African MENA countries.

152
List of contents of European Economy

Basic editions 11, March 1982

• Economic trends and prospects — Unit
1, November 1978 labour costs in manufacturing industry and in
the whole economy
• Annual Economic Report 1978–79
• Annual Economic Review 1978–79
12, July 1982
2, March 1979 • Documents relating to the European
• European monetary system monetary system
— Texts of the European Council of 4 and
5 December 1978 13, September 1982
3, July 1979 • The borrowing and lending activities of
the Community in 1981
• Short-term economic trends and prospects
• The European monetary system
— Commentary 14, November 1982
— Documents • Annual Economic Report 1982–83
• Annual Economic Review 1982–83
4, November 1979
• Annual Economic Report 1979–80
15, March 1983
• Annual Economic Review 1979–80
• Economic trends and prospects — Budgetary
5, March 1980 systems and procedures — Industrial labour
• Short-term economic trends and prospects costs — Greek capital markets
• Adaptation of working time
16, July 1983
6, July 1980
• Business investment and the tax and financial
• Short-term economic trends and prospects — environment — Energy and the economy:
Borrowing and lending instruments looked at a study of the main relationships in the countries
in the context of the Community’s financial of the European Community —
instruments The foreign trade of the Community,
the United States and Japan
7, November 1980
• Annual Economic Report 1980–81
17, September 1983
• Annual Economic Review 1980–81
• The borrowing and lending activities
8, March 1981 of the Community in 1982
• Economic trends and prospects —
The Community’s borrowing and lending 18, November 1983
operations recent developments
• Annual Economic Report 1983–84
9, July 1981 • Annual Economic Review 1983–84
• Fifth medium-term economic policy programme
— The main medium-term issues: an analysis 19, March 1984
• Economic trends and prospects —
10, November 1981 Industrial labour costs — Medium-term budget
• Annual Economic Report 1981–82 balance and the public debt — The issue of
• Annual Economic Review 1981–82 protectionism
20, July 1984 30, November 1986
• Some aspects of industrial productive • Annual Economic Report 1986–87
performance in the European Community:
an appraisal — Profitability, relative factor prices 31, March 1987
and capital/labour substitution in the Community, • The determinants of investment —
the United States and Japan, 1960–83 — Estimation and simulation of international
Convergence and coordination of trade linkages in the Quest model
macroeconomic policies: some basic issues
21, September 1984 32, May 1987
• Commission report to the Council and to • Commission report to the Council and to
Parliament on the borrowing and lending Parliament on the borrowing and lending
activities of the Community in 1983 activities of the Community in 1986

22, November 1984 33, July 1987

• Annual Economic Report 1984–85 • The economy outlook for 1988 and budgetary
• Annual Economic Review 1984–85 policy in the Member States — Economic trends
in the Community and Member States
23, March 1985
• Economic trends and prospects 1984–85 34, November 1987
24, July 1985 • Annual Economic Report 1987–88
• The borrowing and lending activities of 35, March 1988
the Community in 1984
• The economics of 1992
25, September 1985
• Competitiveness of European industry: 36, May 1988
situation to date — The determination of • Creation of a European financial area
supply in industry in the Community —
The development of market services in the 37, July 1988
European Community, the United States and
• Commission report to the Council and to
Japan — Technical progress, structural
Parliament on the borrowing and
change and employment
lending activities in the Community in 1987
26, November 1985
38, November 1988
• Annual Economic Report 1985–86
• Annual Economic Review 1985–86 • Annual Economic Report 1988–89

27, March 1986 39, March 1989

• Employment problems: views of businessmen • International trade of the European Community
and the workforce — Compact —
A prototype macroeconomic model of the 40, May 1989
European Community in the world economy
• Horizontal mergers and competition policy in
28, May 1986 the European Community
• Commission report to the Council and to
41, July 1989
Parliament on the borrowing and lending
activities of the Community in 1985 • The borrowing and lending activities of
the Community in 1988 — Economic
29, July 1986 convergence in the Community:
• Annual Economic Review 1986–87 a greater effort is needed
42, November 1989 55, 1993
• Annual Economic Report 1989–90 • Broad economic policy guidelines and
convergence report
43, March 1990
56, 1994
• Economic transformation in Hungary and Poland
• Annual Economic Report for 1994
44, October 1990
57, 1994
• One market, one money
• Competition and integration — Community
45, December 1990 merger control policy
• Stabilisation, liberalisation and devolution
58, 1994
46, December 1990 • 1994 broad economic policy guidelines — Report
• Annual Economic Report 1990–91 on the implementation of macrofinancial
assistance to third countries
47, March 1991
59, 1995
• Developments on the labour-market in
the Community — Quest — A macroeconomic • Annual Economic Report for 1995
model for the countries of the European
60, 1995
Community as part of the world economy
• 1995 broad economic policy guidelines
48, September 1991
61, 1996
• Fair competition in the international market:
Community State aid policy — The ecu and • Annual Economic Report for 1996
its role in the process towards monetary union
62, 1996
49, 1993
• 1996 broad economic policy guidelines
• Reform issues in the former Soviet Union
63, 1997
50, December 1991
• Annual Economic Report for 1997
• Annual Economic Report 1991–92
64, 1997
51, May 1992
• 1997 broad economic policy guidelines
• The climate challenge: Economic aspects of the
Community’s strategy for limiting CO2 emissions 65, 1998
• Commission’s recommendation concerning the
52, 1993
third stage of economic and monetary union —
• The European Community as Convergence report 1998 — Growth and
a world trade partner employment in the stability-oriented framework
of EMU
53, 1993
66, 1998
• Stable money — sound finances: Community
public finance in the perspective of EMU • 1998 broad economic policy guidelines

54, 1993 67, 1999

• Annual Economic Report for 1993 • 1999 Annual Economic Report
68, 1999 Reports and studies
• 1999 broad economic policy guidelines
69, 1999 1-1993
• The EU economy: 1999 review • The economic and financial situation in Italy
70, 2000
2-1993
• 2000 broad economic policy guidelines —
Convergence report 2000 — Proposal for • Shaping a market economy legal system
a Council decision for the adoption by Greece
of the single currency on 1 January 2001 3-1993
• Market services and European integration:
71, 2000
the challenges for the 1990s
• The EU economy: 2000 review
4-1993
72, 2001
• 2001 broad economic policy guidelines • The economic and financial situation in Belgium

73, 2001 5-1993

• The EU economy: 2001 review • The economics of Community public finance
Investing in the future
6-1993
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1-1994
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borrowing — Growth and employment:
the scope for a European initiative

2-1994
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3-1994
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4-1994
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5-1994
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policy (CAP)

6-1994
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7-1994
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1-1995 6-1997
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the Netherlands and consumer surveys

2-1995 1-1998
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assistance to the third countries in 1994 The rational design of European environmental
policy
3-1995
2-1998
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• The economic and financial situation in Austria
4-1995
3-1998
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trade within the single market • Income benefits for early exit from
the labour market in eight European countries —
1-1996 A comparative study
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Ireland in the transition to EMU
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2-1996
2-1999
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of the compensatory payments
3-1999
3-1996
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• Economic evaluation of the internal market 5-1999

1-1997 • Italy’s slow growth in the 1990s

• The economic and financial situation in Portugal 6-1999

in the transition to EMU • Generational accounting in Europe
2-1997 1-2000
• The CAP and enlargement — Agrifood price • The report on the implementation of
developments in five associated countries the 1999 broad economic policy guidelines
3-1997 2-2000
• The European Union as a world trade partner • Public debt and fiscal policy in EMU
4-1997 3-2000
• The welfare state in Europe — Challenges and • Public finances in EMU — 2000
reforms
4-2000
5-1997 • Performance of the European Union labour
• Towards a common agricultural and rural policy market — Joint harmonised EU programme of
for Europe business and consumer surveys
1-2001 Special editions
• Current issues in economic growth

2-2001 Special issue 1979

• Changes in industrial structure in the European
• Report on the implementation of economies since the oil crisis 1973–78 —
the 2000 broad economic policy guidelines Europe — its capacity to change in question
3-2001 Special edition 1990
• Public finances in EMU — 2001 • The impact of the internal market by industrial
sector: the challenge for the Member States
4-2001
Special edition No 1/91
• The budgetary challenges posed by ageing
populations • The economics of EMU

5-2001 Special edition No 2/91

• The path of reform in central
• The efficiency defence and the European system
and eastern Europe
of merger control
Special edition No 1/92
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New numbering
2002
1-2002 Special Report No 1/2002
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broad economic policy guidelines of globalisation
2-2002 Special Report No 2/2002
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of product markets
3-2002
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4-2002
• 2002 broad economic policy guidelines
5-2002
• Economic forecasts — Autumn 2002
6-2002
• The EU economy: 2002 review
 2003
1-2003 4-2003
• Report on the implementation of the 2002 • Broad economic policy guidelines
broad economic policy guidelines (for the 2003–05 period)
2-2003 5-2003
• Economic forecasts — Spring 2003 • Economic forecasts — Autumn 2003
3-2003 6-2003
• Public finances in EMU — 2003 • The EU economy: 2003 review

2004
1-2004 5-2004
• Report on the implementation of the 2003–05 • Economic forecasts — Autumn 2004
broad economic policy guidelines
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2-2004
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3-2004 Special Report No 1/2004
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4-2004 Special Report No 2/2004

• The 2004 update of the broad • Convergence report 2004
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Special Report No 3/2004
• Quality and efficiency in education

2005
1-2005 5-2005
• Second report on the implementation of the • Economic forecasts — Autumn 2005
2003–05 broad economic policy guidelines
Special Report No 1/2005
2-2005 • The contribution of wage developments
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3-2005
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4-2005
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