ECONOMIC OUTLOOK SPRING 2011: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011

ECONOMIC SITUATION

- The recovery has so far been stronger than anticipated and should continue in coming months. BUSINESSEUROPE predicts real GDP growth in 2011 to reach 1.8% in the EU 27 and 1.7% in the euro area.
- Almost one million new jobs will be created this year in EU 27, the vast majority of these in the countries which have a stronger competitive position and sounder public finances. Employment growth will be strongest in Poland, Luxembourg, Lithuania, Finland, Netherlands, Germany, and Belgium.
- The recovery in Europe remains uneven, reflecting the unwinding of pre-crisis imbalances. This implies particularly acute policy challenges for Member States which accumulated large current account deficits before the crisis.
- In countries with stronger current account positions, the export-led recovery has now broadened to domestic demand, with rising investment and employment being the main sources for propagation of the momentum throughout the EU’s internal market.

-The events in Japan and North Africa are expected to have only a limited impact on EU growth this year, although lasting disruptions to supply chains, commodity and financial markets are at present very difficult to estimate.
- Main downside risks to our forecasts are in order of importance: oil prices, the situation of public finances, wage pressures, financial market instability, and the risk of a tax-driven budgetary consolidation.
POLICY CONSIDERATIONS
- Modernising wage bargaining and wage-setting mechanisms is key to improve competitive adjustment channels. This must complement labour market reforms geared towards flexicurity principles to improve mobility and skills matching.
- Member States’ commitment to improve competitiveness and pursue growth-enhancing reforms should translate into concrete and ambitious National Reform Programmes to be submitted to the European Commission this April.
- Fiscal consolidation in most Member States should be geared more clearly towards enhanced public sector efficiency and cuts in wasteful expenditures, while supporting growth-enhancing investments and tax reforms.
- Credible stress tests for banks must be accompanied by clear commitments to provide financial backstops and recapitalisation plans for vulnerable institutions.
- The business community is fully confident in the ECB’s ability to firmly anchor price expectations while preserving a dynamic recovery.
- Fiscal responsibility must lie with the Member States and the independence of the ECB must be strongly defended. SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011

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