The European Commission on Monday’s revised its growth forecast for EU economy in 2010. According to the new data, GDP for the 16-nation euro area this year should jump 1.7%, compared to its previous forecast of 0.9%, thanks to increases of 3.4% in Germany and Poland, 1.9% in the Netherlands, 1.7% in Britain, 1.6% in France, and 1.1% in Italy.

Poland – manufacturing sector leads the recovery

 Economic activity continued to be strong in the second quarter of 2010, with GDP growth reaching 1.1% q-o-q. The upswing was driven by a strong manufacturing sector (industrial production (s.a.) grew by 10.5% y-o-y in the second quarter of 2010) and a sharp rebound in world trade that brought Polish exports to their pre-crisis levels. Moreover, domestic demand increased on the back of rebuilding inventories and accelerating private consumption, fuelled by improving confidence as the recovery becomes firmer, and the overall resilience of the labour market. However, private investment continued to suffer from uncertainties regarding the global recovery and low capacity utilisation levels.  In 2010 real GDP growth is expected to accelerate to 3.4%, ¾ pp. higher than expected in the Commission’s spring forecast. This follows from the better-than-expected result in the first half of 2010.

Quarterly real GDP growth is projected to slow somewhat in the third quarter of 2010 and remain stable in the final quarter of the year. The recovery is likely to be mild in the second half of the year, as the impetus from stock-building is likely to peter out and employment growth will remain sluggish towards the end of 2010. Although part of the labour-market adjustment was achieved through real wages, labour hoarding during the slowdown will imply less employment-rich growth and some re-adjustment of wages in the years to come. Stagnating employment and real wages will weigh on real disposable income and, combined with necessary fiscal consolidation, limit the potential for a strong rebound of domestic consumption.

 Investment growth will mainly reflect robust public spending in capital expenditure, while tight financing conditions and excess capacity in certain sectors will hamper growth in private investment. The annual HICP inflation rate reached 2.5% in the second quarter of 2010, a notch higher than in the spring forecast. It is expected to remain below the central bank’s inflation target of 2.5% within the forecast horizon, reflecting the remaining slack in the economy.

Document – EU