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Economic slowdown sharper than expected - 10/09/2008

Commissioner Almunia in front of a graph showing the economic outlook

In an increasingly difficult global economy, prospects for economic growth in the EU worsen and inflation has not yet started to ease off.

The EU economy is set to grow by 1.4% in 2008, according to the commission's most recent interim forecast – down from the 2.0 predicted in the spring. The eurozone forecast has also been trimmed – from 1.7% in the spring to 1.3% now.

While fundamentals in the eurozone and EU economy as a whole are sound, a number of factors explain the grim short-term growth prospects:

  • ongoing uncertainty in the global economy and a slow-down in global growth – despite robust growth in emerging economies
  • tensions in financial markets, driving house prices down to a more sustainable level and dampening economic activity, with some EU countries especially hard hit
  • a widespread deterioration in confidence across countries and sectors.

 

Meanwhile, soaring energy and food prices have fuelled inflation this year – though oil and other commodity prices have now come down from their summer highs. Projected inflation for 2008 has been revised up to 3.8% for the EU (3.6% in the eurozone) – but much will depend on developments in commodity markets, and whether higher prices there filter through into more general price and wage inflation.

The commission's interim forecast is based on updated projections for France, Germany, Italy, the Netherlands, Poland, Spain and the UK – together accounting for some 80% of the EU’s GDP. The next comprehensive forecast of the EU economy is due on 3 November 2008.

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