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Mild recession to slow recovery
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Published on 11-05-12 

EU GDP will stagnate in 2012 with current mild recession balanced by slow recovery in the second half of the year, according to the European Commission (EC) Spring Economic Forecast.  EU output will grow by 1.3% in 2013. For the UK, the EC forecasts growth of 0.5% in 2012 and 1.7% in 2013.

    Olli Rehn, Commission Vice-President for Economic and Monetary Affairs

    Olli Rehn, Commission Vice-President for Economic and Monetary Affairs

    Key points for UK

    The overall outlook for the UK economy for 2012 remains uncertain but, with an anticipation of stronger real wages improving household consumption growth towards the end of the year and more stability in the UK's export markets, GDP growth is expected to remain positive at 0.5% in 2012 with a further improvement in 2013 to 1.7% as investment rises.

    The unemployment rate is likely to increase slightly in 2012, to peak at 8.5% - compared to 8% in 2012 - before edging back to 8.4% in 2013.

    The forecast is for UK inflation to fall from 4.5% in 2011 to an average of 2.9% in 2012 and 2.0% in 2013.

    The budget deficit for 2012 is forecast to fall to 6.7% of GDP from 8.3% in 2011, though some of this is due to one-off measures concerning the Royal Mail pension fund. The 2013 deficit is estimated at 6.5%.

    Overall government debt is set to rise further to 91.2% of GDP in 2012 from 85.7% in 2011, with a lower increase in 2013 to 94.6%.


    Key points for EU

    Real GDP is projected to stagnate in the EU and to contract by -0.3% in the euro area in 2012. For 2013, growth is forecast at 1.3% in the EU and 1.0% in the euro area.

    EU employment is forecast to contract by 0.2% in 2012 (0.5% in the euro area), followed by a gradual improvement in 2013.

    Public finances in the EU improved significantly in 2011 and this trend should continue, with public deficits in 2013 declining to 3.3% in the EU and just below 3% in the euro area.

     Unemployment is expected to remain high at 10% in the EU and 11% in the euro area over the forecast period. Inflation is set to moderate gradually and fall back to below 1.8% in 2013, as the impact of higher oil prices and tax increases fades away.

    The main downside risk remains an aggravation of the sovereign-debt crisis with financial contagion and a sharp drop in credit availability. Another prominent risk stems from geopolitical uncertainty that could lead to a surge in oil prices.

    Olli Rehn, Commission Vice-President for Economic and Monetary Affairs and the Euro said: "A recovery is in sight, but the economic situation remains fragile, with still large disparities across Member States. We are witnessing an ongoing adjustment of the fiscal and structural imbalances built up before and after the onset of the crisis, made worse by the still weak economic sentiment Without further determined action, however, low growth in the EU could remain. Sound public finances are the condition for lasting growth, and building on the new strong framework for economic governance, we must support the adjustment by accelerating stability and growth-enhancing policies."

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    Last update: 16/05/2012  |Top