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Interim forecast: mild recession with signs of stabilisation - 23/02/2012

Hands holding binoculars on a table with a bar graph © istock/RBFried

The EU economy is projected to stagnate in 2012, while the euro area is set to enter into a mild recession. Modest growth is predicted to return in the second half of the year.

The latest interim forecast of the European Commission, presented on 23 February, points to a stagnation of the EU economy and to a mild recession in the euro area. However, modest growth is predicted to return in the second half of the year.

Overall, in 2012 GDP is forecast to remain unchanged in the EU and to contract by 0.3% in the euro area. While 17 EU countries are expected to see growth, others are being held back by ongoing market uncertainty, concerns about the public debt crisis, and lower demand for exports. GDP growth is therefore expected to be stagnant in one country and negative in nine.

Inflation

On the back of high energy prices and indirect-tax increases, inflation remains higher than expected. For 2012 as a whole, the inflation rate is now projected at 2.3% for the EU and 2.1% for the euro area.

Domestic and global demand prospects

The economic outlook is conditioned by a less-supportive global economy, with the ongoing weakening of global demand weighing on net European exports. EU business and consumer confidence are still at low levels, although a recent slight improvement has been noted as the financial sector has shown signs of stabilisation.

Also, in the light of subdued demand, credit conditions are not expected to constrain investment and consumption over the forecast horizon. Overall, a gradual return of confidence and a recovery of investment and consumption are expected in the second half of 2012.

Context

This extended interim forecast updates the outlook for all EU countries. Usually interim forecasts – in February and September – review developments for the largest EU economies only. Full forecasts – in spring and autumn – cover growth, inflation, employment and public finances in all EU countries and several non-EU countries. The next spring forecast will be published on 11 May 2012.

More on the interim spring economic 2012 forecast

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