A tough 2009, but EU economy set to stabilise as support measures take effect
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The Commission issued on 4 May its spring economic forecast. In short, the EU economy is in the midst of its deepest and most widespread recession in the post-war era, but it is set to stabilise in 2010 as the ambitious measures taken by governments and central banks in these exceptional circumstances are expected to put a floor under the fall in economic activity this year and enable a recovery next year.
The Commission forecasts a sharp contraction of the EU economy by 4% in 2009 (relative to a positive growth of 0.8% in 2008). Almost all EU countries are severely hit by the worsening of the financial crisis, the sharp global downturn and ongoing housing market corrections in some economies. However, with the impact of fiscal and monetary stimulus measures kicking in, growth is expected to regain some momentum in the course of 2010 (annual growth forecast for 2010 stands at -0.1%). Figures are essentially the same for the euro area as for the EU as a whole. These figures represent a significant downward revision compared to the autumn forecast and the interim forecast of January 2009.
Inflation has fallen sharply in recent months and is projected to continue to do so during the second and third quarter of this year, due to further base effects, a weak economic outlook and an assumed decline in commodity prices. Overall, HICP inflation is projected to be slightly lower than 1% in the EU (and ½% in the euro area) in 2009 and to gradually pick up to about 1¼% next year.
Labour market and public finances are hit hard by the crisis. Employment is expected to contract by about 2½% in both the EU and the euro area this year and by a further 1½% in 2010. Altogether, employment could fall by about 8½ million in the EU in 2009-10, in contrast to the net job creation of 9½ million during 2006-08.
The budget deficit is set to more than double this year in the EU (from 2.3% of GDP in 2008 to 6%) and to increase further in 2010 (to 7¼%) ensuing from both the impact of the economic slowdown itself and the sizeable discretionary budgetary stimulus to support economic activity.
Considerable uncertainties remain amid the worst recession of the global economy since the Second World War. The outlook for economic activity hinges in particular on the impact of the financial crisis and the strength of the feedback loops between different sectors of the economy as well as the effectiveness of the fiscal and monetary stimulus measures.
The Commission publishes economic forecasts four times a year. The comprehensive spring and autumn forecasts cover 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 – review developments since the preceding forecast for the largest economies only.
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