WRITTEN QUESTION E-1473/00

by Alejandro Agag Longo (PPE-DE) to the Commission

(10 May 2000)

Subject: Recommendation on the major economic policy guidelines

A close reading of the Commission's recommendation on the major economic policy guidelines suggests that the macroeconomic frameworks and forecasts which the text uses as its starting-point are presented with an optimism which some might consider excessive.

In an increasingly globalised and highly volatile environment, not only on the financial markets but also on the material markets (as the case of oil should illustrate sufficiently), it is surely reasonable to conclude that there will be knock-on effects of one economy on another.

In this connection, has the Commission taken sufficient account of the effects on the EU's economy of a possible economic overheating or, indeed, recession in the US? What account has the Commission taken of the price of oil, a factor of major importance, when drawing up its recommendations? What future macroeconomic frameworks have been deployed in the preparation of this text?

Answer given by Mr Solbes Mira on behalf of the Commission

(27 June 2000)

The spring 2000 forecasts of the Commission (published on 11 April 2000(1)) are, as usual for Commission or any other economic forecasts, based on a number of assumptions concerning the world economy, commodity prices, money and foreign exchange markets. These assumptions, together with the proper forecasts on the development of the economies of the Community, translate into a main scenario forecast, which, for the spring forecast, indeed amounted to relatively strong figures for economic growth in the Community.

This relatively positive economic outlook is, in the view of the Commission, not based on particularly optimistic assumptions, but instead on the combination of the end of the economic and financial crisis of 1997 and 1998 in some emerging countries, together with sustained domestic growth and favourable policy conditions in the Community. The assumptions, in the view of the Commission, properly reflect present knowledge and expectations about future development in key areas and markets. Other forecasts paint a similar outlook.

In particular, the oil price (Brent) is estimated to reach USD 24,2 a barrel on average in 2000 and USD 21,2 in 2001. After higher prices in the beginning of 2000, markets temporarily calmed in April 2000 after the Organization of petroleum exporting countries meeting in late March 2000, but, in mid June prices reached again levels of around USD 30. Indicators still point to a decline in the remainder of the year, but that might occur on a higher path than indeed assumed for the Spring Forecasts. It should, of course, be borne in mind that oil prices have historically been quite volatile. Other market observers and market participants (the latter reflected by the prices for futures contracts on crude oil) equally show an expectation of crude oil prices falling over the next two years. Further the US economy is, according to the spring forecast, expected to grow by 3,6 % in 2000 and 3 % in 2001. These forecasts are at the lower end of the range of expectations of other market participants. These figures are also, if anything, rather cautious in the light of the already recorded strong growth of the United States economy in the first quarter of 2000.

It is evident that this main scenario forecast is subject to a number of uncertainties, in particular as regards the global economic and financial development, including the development of the oil price and the United States economy. The forecasts explicitly mentioned such risks and uncertainties, which could affect the forecast figures in both directions. However, in the view of the Commission, policy recommendations should be based on the main scenario forecast and not deal with relatively unlikely crisis scenarios which are indeed difficult to predict.

(1) Supplement A series of European Economy (No 1/2 April 2000); ISSN: 0379-2056.