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Recovery still fragile - 25/02/2010

Economic and Monetary Affairs Commissioner Olli Rehn ©EU

Commission expects GDP in the EU to gradually return to pre-recession levels. But the economy still faces headwinds.

The longest and deepest recession in EU history came to an end in the third quarter of 2009 as real GDP started to grow again. But as was expected, growth slowed in the last quarter of the year.

Looking ahead, the economy is likely to expand just 0.7% in 2010, in line with the 2009 autumn forecast.

The EU benefited from a stronger global recovery than expected in the second half of 2009. Global conditions continue to be encouraging, with the world economy expected to grow 4¼% in 2010 (excluding the EU).

Despite this positive environment, several factors threaten to restrain EU growth in 2010. These include weaker housing markets in several member countries and lower industrial output and retail sales. The outlook in financial markets, meanwhile, remains uncertain, despite big gains since the start of 2009. And unemployment rates look set to rise, which would dampen consumer spending.

In 2009 inflation was a very moderate 1.0% in the EU and 0.3% in the euro area, reflecting the slackening economy. The 2010 rate for the EU as a whole is now expected to reach 1.4%, a slight increase over the previous forecast. The eurozone forecast remains unchanged at 1.1%.

The risks surrounding recovery remain balanced in the current update. Recent developments in the financial markets illustrate the potential for more uncertainty. But a stronger-than-expected global recovery could boost the EU economy.

The commission usually publishes economic forecasts four times a year - comprehensive spring and autumn forecasts and smaller interim forecasts in February and September. The next forecast is due out in May.

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