Page 11 - Annual Report 2010

Introduction

9

All these factors have resulted in a great degree of un-certainty in the global economy, and have impeded the recovery. According to the Economist Intelligence Unit, overall EU 27 growth for the year came in at around 1.7%, with both EU 15 and EU 12 experiencing similar rates; going forward, EU 12 is forecast to experience a more rapid recovery than EU 15.

Lacklustre performance going forward

In 2011, the sluggish and multi-speed nature of the recov-ery is likely to continue, with growth unlikely to be much greater than 1% in the EU 27, and in the region of 1.5% in 2012. As has been a feature of this downturn, there will be a significant difference between the performance of dif ferent Member States, with growth weakening in the Eurozone periphery, while being relatively healthy in certain countries, in particular Germany, which has been bolstered by export demand from emerging economies.

The factors that constrained the recovery in 2010 are still likely to have an impact in 2011, in particular continued fiscal retrenchment, uncertainty about household income and ongoing repair of banks’ balance sheets. However, at this stage, it is unlikely that monetary policy will need

The European market environment

2010 was the year …

… in which policymakers around the world walked a tight-rope as they tried to get their economies back on track. While policy stimulus, strong demand from emerging markets, and the inventory cycle gave a boost to many economies in the first half of the year, governments ran the risk of plunging their economies back into recession as they began to withdraw stimulus in order to prevent confidence crises and a ballooning in national debt.

At the same time, central bankers in many developed economies had to walk a fine line between deflation and inflationary risks, trying to offset weak domestic price and wage pressures against increasing growth and high in-ternational commodity prices. The aggressive monetary policy which ensued impacted on currencies in some cases, which some interpreted as strategic manipulation, a topic that dominated the G20 round.

2010 was also the year in which peripheral Eurozone countries struggled to adjust to the new economic environ-ment. This resulted in a rising cost of government borrowing, making deficit financing difficult. The assistance provided by other members of the Eurozone has so far been suffi -cient to stave off collapse but the situation remains critical.

2006 2007 2008

2009

2010 2011

  EU 15     EU 12

8

6

4

2

0

–2

–4

–6

I I I I I

Figure 1: European Union GDP growth (in %)

Source: Economist Intelligence Unit