EU Forecasts Find Slowdown Sharpening but Growth Expected Before the End of 2009

GDP growth in the European Union is expected to fall by 1.8 % in 2009 before recovering moderately to 0.5% in 2010. This is the result of the impact on the real economy of the intensified financial crisis, the ensuing global downturn manifested in the severe contraction of world trade and manufacturing output and, in some countries, housing-market corrections. Government consumption and public investment, however, will provide relief. The fact that inflationary pressures have eased also contributes to private consumption. The discretionary fiscal measures announced since August 2008 will limit the contraction in GDP growth by about 0.75%. this year. The severity of the economic downturn will have a significant impact on employment and public finances over the forecast horizon.

“The measures to stabilise the financial market, the easing of monetary policies and the economic recovery plans will enable us to put a floor under the deterioration of the economy this year and create the conditions for a gradual recovery in the second part of 2009. The top priority is to make those measures work effectively: to improve the flows of credit at reasonable prices and to implement the fiscal stimulus packages quickly to stimulate investment and private consumption. To boost confidence, it is also crucial that Member States explicitly commit that they will reverse the deterioration of public finances as soon as we return to normal economic times so as to ensure the medium-to-long term sustainability of public finances”, said Joaquín Almunia, economic and monetary affairs commissioner.

Economic growth is forecast to have dropped to about 1% in 2008 in both the EU and the euro area, from just below 3% in 2007, according to the advanced interim forecast. In 2009, real GDP is expected to fall sharply, by 1.8% in the EU and 1.9% in the euro area, before recovering by about 0.5% in 2010.


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