The European Commission is considering supplementing its traditional growth forecasts. Economy Commissioner Paolo Gentiloni said on Monday at the presentation of his agency's traditional spring forecast in Brussels that it was probably time to add "green" and "social" factors to the economic analyses based on the "classic" gross domestic product (GDP). He discussed this at the G-7 finance ministers' meeting last week in Japan with the American Nobel laureate in economics Joseph Stiglitz. Gentiloni called it useful to move from a GDP-based growth forecast to a more comprehensive analysis based on "economic well-being."

Werner Mussler

Economic correspondent in Brussels.

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Commission President Ursula von der Leyen said at a European Parliament conference also on Monday that economic growth was "not a goal in itself". The new growth model of the Commission she leads is that of a "prosperous, responsible and resilient economy". The social market economy has never been just about economic growth. "It was always about the development of humanity, not just about market efficiency and liberalization." It is not only about growth, but also about "public goods" such as health care, education, skills, workers' rights, personal security, civic engagement and "good governance".

The social market economy also takes into account "our human fragility," von der Leyen continued. The growth model she is pursuing is the "blueprint for a systematic modernisation of Europe's industry". The head of the Commission recalled that the recovery plan, which was launched during the pandemic and financed by EU debt, was intended not only for the restart of the economy, but also for the "transformation of our economic model".

Growth prospects remain modest

The spring forecast presented by Gentiloni is still based on traditional GDP. But the Italian also emphasized the importance of the reconstruction plan. Government spending financed by grants from the Fund between 2021 and 2024 amounts to 3.5 percent of GDP in Spain and Greece, over 3 percent in Croatia and Portugal, and 2.5 percent in Italy and Slovakia.

In contrast, growth prospects remain quite modest according to the forecast. For the euro area average, the Commission calculates 1.1 percent (2023) and 1.6 percent (2024). The three largest economies, Germany, France and Italy, are growing at a below-average rate. For Germany, the Commission forecasts growth of 2023.0 percent for 2, less than the federal government (0.4 percent). The authority sees worse prospects only for Estonia (minus 0.4 percent). Gentiloni said, however, that the German economy is increasingly recovering from the energy price shock. In the coming year, the German and French economies are forecast to grow by 1.4 percent each, while the Italian economy will grow by 1.1 percent.

This year, German inflation is forecast to remain 6.8 percent, above the euro average of 5.8 percent. The differences in inflation between euro countries are no longer as high this year as they were in 2022, Gentiloni said, but they remain noticeable. It was not until 2024 that national inflation rates converged again. According to the forecast, inflation this year will be lowest in Luxembourg (3.2 percent) and highest in Slovakia (10.9 percent). In the coming year, euro inflation will remain unchanged at 2.8 percent, above the ECB's target of 2 percent.

Gentiloni also noted major differences between the euro countries in the development of national budgets. In the current year, the debt ratio in twelve of the 20 euro countries is forecast to be above the Maastricht reference value of 60 percent of GDP.

The government deficit, the size of which has an indirect impact on the debt ratio, also remains high. Last year, eleven EU countries were above the Maastricht reference value of 3 percent of GDP, this year it will be 14 according to the forecast, and ten next year.

In Gentiloni's view, the large differences in debt between member states demonstrate the need for a reform of the EU Stability Pact, as proposed by his agency. In the future, the Commission wants to negotiate a longer-term "debt reduction path" with each member state individually.