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EU growth – slower but resilient - 28/04/2008

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Slower economic growth and higher inflation expected in the face of persisting financial turmoil and global cooling.

The Commission's spring economic forecast sees economic growth in the EU decelerating from 2.8% in 2007 to 2.0% in 2008 and1.8% in 2009. The trend for the eurozone will be similar, but at a slightly lower level of growth (1.5% in 2009).

This slower growth should be seen in the context of the marked slowdown in global activity, with the US on the brink of recession, continued turbulence in the financial markets and soaring commodity prices. But the EU economy should hold up relatively well in the face of these external shocks, due to sound fundamentals.

Following rapid increases in food and energy prices, inflation is expected to rise briefly to 3.6% this year (compared with 2.4% in 2007), before returning to 2.4% in 2009. Again, the eurozone should follow this pattern, albeit at a level some 0.3pp. lower.

The labour market is also likely to feel the pinch, but 3 million new jobs are expected in 2008-09 on top of the 7.5 million already created in 2006-07. Unemployment should bottom out at 6.8% in the EU this year (7.2% in the eurozone).

Following several years of fiscal consolidation by EU governments, budget deficits are projected to increase somewhat overall in the forecast period - to 1.2% of GDP in the EU and 1.0% in the eurozone (in 2008). For 2009, based on a no-policy-change assumption, the deficit should broadly stabilise.

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