The economic recovery is underway in the EU, although it is set to be a gradual one.
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The Commission issued on 5 May its spring economic forecasts. The economic recovery is underway in the EU, although it is set to be a gradual one. The economic recession came to an end in the EU in the third quarter of last year, in large part thanks to the exceptional crisis measures put in place under the European Economic Recovery Plan, but also owing to some other temporary factors.
The speed of recovery is forecast to increasingly vary across EU countries, reflecting the extent of the housing-market correction needed, the size of the financial-services sector and the degree of internal and external imbalances.
GDP growth is expected to average at about 1% in both regions this year. This represents a modest upward revision compared to the autumn forecast in light of the improved external environment. GDP growth is expected to regain ground more firmly by the end of 2010 only. This follows from the still very low level of capacity utilisation, deleveraging and heightened risk aversion that hold back investment, and restrain private consumption growth Consumption growth is also constrained by weak wage and employment growth and, in a number of countries, by the housing-market correction. Thus, next year, annual growth rates of about 1¾% and 1½% are expected in the EU and the euro area, respectively.
Consumer-price inflation has rebounded somewhat from the very low levels recorded in mid-2009. The sizeable slack in the economy is nevertheless expected to keep both wage growth and inflation in check. In 2010, inflation is expected to reach 1¾% in the EU and slightly lower, 1½%, in the euro area.
Although significant, the impact of the crisis on the labour market seems smaller than initially expected, due to the resilience shown in some Member States to date. The unemployment rate is projected to broadly stabilise at close to 10% in the EU. Nevertheless, for the euro area, it is expected to continue rising to 10½% within the forecast horizon.
One of the legacies of the recent economic and financial crisis has been a marked deterioration in the fiscal position. The general government deficit has tripled since 2008. It is projected to peak this year in the EU (reaching 7¼% of GDP) and to improve slightly in 2011 (to around 6½%). This follows from the expiry of temporary support measures and the pick-up in activity.
The EU economy is facing significant headwinds and unusual impediments as it transits towards a new steady state. The outlook presented is thus subject to considerable uncertainty and non-negligible risks. Some factors points to a more rapid turnaround in the economy, while others suggest that the recovery could prove more subdued than expected. Overall, risks to the EU growth outlook and inflation for 2010 and 2011 appear broadly balanced.
The Commission publishes economic forecasts four times a year. The comprehensive spring and autumn forecasts cover some 150 economic variables, including growth, inflation, employment and public budget deficits and debts, for all EU Member States and several non-EU countries. The smaller, interim forecasts - normally published in February and September - provide a short-term update of GDP and HICP inflation outlook for the largest Member-State economies only.
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