EU interim forecast: recovery stalls amid financial market crisis
In its latest interim forecast, published on September 15, the Commission presents its assessment of economic prospects in the euro area and the whole of the EU for 2011. The document includes estimates for GDP growth and inflation in the EU and the euro area, as well as detailed projections for the seven largest EU Member States: Germany, Spain, France, Italy, the Netherlands, Poland, and the UK.
After a strong first quarter, and a considerable softening in the second, the new projections for the remainder of the year imply a slower recovery than expected at the time of the spring forecast. Downside risks to the growth prospects have increased, primarily due to concerns about the unresolved euro-area crisis and its repercussions on financial markets' health as well as the global economic slowdown.
While the forecast for GDP growth for 2011 as a whole remains unchanged at 1.6% in the euro area and stands at 1.7% for the EU, a pronounced deceleration is expected in the second half of the year. Downward revisions apply to both the third and the fourth quarter in the EU as a whole and in the euro area. Quarterly GDP growth rates for both areas have been revised down by 0.2 and 0.3 percentage points respectively.
Several factors point to slowing growth: net export growth, the main engine of growth in the second quarter, is decelerating, while the weaker business and consumer sentiment indicate a weakening of domestic demand. Financial market stress and the sovereign debt crisis are set to dent confidence and increase investment cost.
After accelerating in the first half of the year on the back of rising energy prices, inflation is expected to gradually slow down. Lower commodity prices and softening global demand, as well as moderate wage growth are all expected to subdue inflationary pressures. HICP inflation for the EU and the euro area is forecast to stand at 2.9% and 2.5%, respectively, for the year as a whole.
Some of the risks anticipated in the spring forecast have materialised, while risks to growth remain tilted to the downside. The risks to the inflation outlook have meanwhile become broadly balanced.
The Commission usually publishes economic forecasts four times a year - comprehensive spring and autumn forecasts and smaller interim forecasts in February and September. The Commission's interim forecast is based on updated projections for France, Germany, Italy, the Netherlands, Poland, Spain and the UK.
The next full forecast for all EU Member States, covering 2012 and 2013, will be released in November 2011.