Economic standstill forecast in wake of financial crisis

Hit by economic turmoil and the sharp global downturn, growth in the EU slows almost to a halt.

The commission's latest economic forecast projects a sharp drop in EU growth to 1.4% in 2008 (half the 2007 figure), 0.2% in 2009 and 1.1% in 2010 (with eurozone figures slightly lower at 1.2%, 0.1% and 0.9% respectively). These figures are lower than the spring forecast.

The slowdown will help ease inflationary pressures. In addition to oil prices falling, there is less risk of knock-on effects triggering higher general inflation. Employment is expected to increase marginally in 2009-10, while 6 million new jobs were created in 2007-08. The unemployment rate is expected to rise by about 1 percentage point between 2008 and 2010.

The worsening economic outlook looks set to eat into public finances. Overall, government budget deficits are expected to increase from under 1% of GDP in 2007 to 2.6% in 2010 – assuming no policy changes. For the eurozone, deficits are forecast to reach 1.3% this year and 2% in 2010. But public finances – and public debt in particular – are hard to predict with confidence, due to uncertainties over the fiscal implications of government rescue packages.

The economic situation is exceptionally shaky at present, in the wake of the financial crisis which deepened and broadened rapidly this autumn. There is a significant risk that these forecasts may have to be revised downwards.

The commission publishes economic forecasts four times a year. The comprehensive spring and autumn forecasts cover growth, inflation, employment and public budget deficits and debts for all EU countries. The smaller interim forecasts – published in February and September – review developments since the preceding forecast.