The outbreak of swine flu is not helpful for the world economy but nor should its economic impact be overstated, European Union Economic and Monetary Affairs Commissioner Joaquin Almunia said on Tuesday.
“These things at such a delicate moment for the world economy are not helpful, but the economic consequences shouldn’t be exaggerated,” Almunia told reporters in Spain’s Congress. “In the first days it’s produced alarm, it’s produced a reaction in markets, but I hope it won’t have any greater impact.”
Almunia said Europe had to closely monitor people with flu symptoms to stop the virus spreading after it killed up to 149 people in Mexico. “At the moment the impact is on people,” Almunia said, after Spain and Scotland said they each had two cases.
Asked about the global crisis, Almunia said most countries in the European Union should begin to recover in 2010. In the case of Spain, he said it could take longer and urged reform of its labor market and education system following 15 years of rapid economic growth built largely on construction and consumer spending. “An economy like Spain needs to improve productivity,” he said.
Almunia ruled out deflation in Spain and the euro zone and saw a pick up in inflation by the end of the year. He said Spain should start cutting fiscal stimulus to meet its commitment to rein in its budget deficit towards an EU limit of 3% of gross domestic product over the medium term. “It’s the moment to start withdrawing stimulus and to work hard to correct the fiscal deficit,” he said.
The Bank of Spain forecasts Spain’s public sector budget deficit will swell to nearly 9% of GDP next year. The European Commission has given Spain until 2012 to cut its deficit to the EU ceiling.
Economy Minister Elena Salgado has promised extra fiscal measures, if necessary, after her predecessor Pedro Solbes was fired following repeated warnings Spain had no further room for discretionary spending.
Almunia said Salgado shared Solbes’ commitment to EU deficit rules.
“She knows how to use fiscal policy in the short term to confront a recession like the one we face, but in the medium term she is targeting budget stability,” Almunia said. (Reuters)