WASHINGTON, Jan. 27 (UPI) -- As the European Union continues to battle high oil prices and a less than attractive dollar to euro exchange rate, economists are predicting a moderate recovery for 2005.
According to a survey released this month by the association of European Chambers of Commerce, which represents 43 national associations of chambers of commerce and 2000 European regional and local chambers, Europeans can expect a moderate and gradual economic recovery in 2005.
"The economic growth that businesses have been able to witness in the EU this year, and most of all the economic recovery worldwide, are contributing to this positive attitude," the Eurochambers report stated.
However, economic indicators also predict that the business climate throughout the European Union will experience a marginal decrease from 2004, due to the rise in commodity prices and the unfavorable dollar to euro exchange rate, which have been severely punishing exporters.
As a result of these two competing factors, the European Commission downgraded their forecasted GDP growth rate to 2.3 percent for 2005, well under the 2.5 percent GDP in 2004.
But not all hope is lost.
Individual member states have begun to re-evaluate their individual business climate indexes and the effects of the strong growth rates from the 10-new member states are helping to aid the ailing European economy.
"The enlarged internal market offers increased opportunities for exports and this is reflected in the high optimism expressed by businesses in the 'old' as well as the 'new' Member States," stated the report.
While a strengthening economy in countries like Central Europe and the Balkans are playing a crucial role in elevating the EU's economic recovery, it is suspected that the positive effects of the EU accession may dwindle as time goes on.
"After its peak in mid-2004, real GDP growth in the EU8 is expected to ease to around 4.5 percent in 2005, reflecting waning effects on EU accession, less accommodating fiscal and monetary policies, and a slight slowdown in growth among the EU 15 countries," said Thomas Blatt Laursen, lead author of the World Bank's third quarter report released Thursday.
But until then, the 10-new Member States increased their output rate by one percentage point.
Additionally, the EU8 saw a drop in unemployment below 14 percent and an increase in domestic demands, foreign direct investments and exports unlike the EU15.
Overall exports increased by 21 percent in the third quarter for the EU8. Countries like Poland and the Czech Republic saw particularly strong export growth and foreign direct investments recovery in 2004, reaching over 3 percent of the GDP in the third quarter.
Even with the sustained economic recovery seen by the 10-new Member States, business climate indicators are showing varied outlooks, some more positive than others.
In Germany, business confidence peaked by 0.2 points in January, suggesting to some that the eurozone outlook may be stronger than anticipated, according to the Munich-based Ifo Institute report released Wednesday.
Based on figures for the report, Germany's business climate increased to 96.4 points in January, higher than December's figures of 96.2 points, making it the highest reading since February 2003.
"The slight improvement in the business climate in January was the result of more optimistic business expectations for the next six months. The assessment of the current situation, however, was slightly weaker than in December," said Hans-Werner Sinn, Ifo's president.
Earlier this month, the European Commission released its own report claiming that the business climate index rose by a marginal 0.05 points in December, after a plummeting decline in November.
Even with all the modestly positive reports on the eurozone's outlook in the coming year, the European Commission has been carrying its own weight to stimulate long-term economic sustainability by creating financial incentive programs for small businesses, expanding their dwindling labor markets and readdressing the issue of European prosperity.
On Wednesday, European Union President Jose Manuel Barroso laid out a five-year plan to revive Europe, echoing sentiments of an old Europe when a single market existed, and relaying the achievements of a single currency and unprecedented enlargement of the EU.
"We must launch a period of European renewal," said Barroso, in a speech before the European Parliament. "I believe that the challenges facing us are so wide and so complex that they can only be tackled in partnership. I believe we must build a dynamic Partnership for European Renewal."
In a joint effort, under the directive of the commission, both the European Parliament and Council have enacted a program to turn the economy around.
On top of the EU's agenda will be to finalize the Lisbon Strategy in order to create sustainable growth and jobs in Europe. The commission is also planning on developing equal rights to start businesses, a common approach on corporate governance, intellectual property, fair corporate taxation rules and trade promoting customs.
"Europe's growth and productivity has failed to match its major economic partners," said Barroso in a statement.
"In the present context of declining growth and considering the challenges from global competition, our first task must be to help restore growth, pursue the necessary reforms and create more and better jobs," Barroso said.
Several reforms have been suggested by the commission over the last several weeks, including a revised state aid reform, which would shift subsidies from big ailing companies to small and mid-sized business.
Earlier this month, the commission announced a $47 million financial incentive program to help aid small businesses throughout the 10-new member states. The program - one of many designed to help small to mid-sized businesses increase their financial standing - is offering financial incentive programs to local banks and credit institutions to increase the number of loans provided to small businesses.
"From my experience of EU enlargement I know that particularly small businesses in new member states are often struggling to obtain financing," said Gunter Verheugen, EU commissioner for enterprise and industry. "Our initiative will help entrepreneurs to create and develop businesses and jobs."
Additionally to help aid the failing auto industry, the commission created a joint partnership with automakers to revive the industry. Currently, the EU auto industry is producing 25 percent lower than the United States, and 30 percent lower than Japan.
"I am convinced that the EU can compete if we offer better quality, better technology and better services," said Gunter Verheugen, vice-president of the European Commission.
