Falling EU economy set to stabilise as measures take effect

The latest official economic forecast predicts the EU economy will shrink by 4% in 2009 – after growing by 0.8% in 2008. Almost all EU countries have been severely hit by the financial crisis, the sharp global downturn and, in some economies, ongoing housing market corrections.

However, as fiscal and monetary measures to stimulate the economy take effect, growth is expected to resume before the end of next year (despite an overall growth forecast of -0.1% for 2010). The figures – essentially the same for the euro area and the EU as a whole – are down compared with the autumn forecast and January 2009 interim forecast.

Inflation has fallen sharply in recent months. HICP inflation – the official measure – is expected to come in at just under 1% in the EU (0.5% in the euro area) for 2009, and to rise gradually to about 1¼% in 2010.

Employment is expected to contract by about 2½% in both the EU and the euro area this year, and by a further 1½% next year. Altogether, a net total of around 8½ million jobs could be lost in the EU in 2009-10, in contrast to the 9½ million created between 2006 and 2008.

Public finances have been hard hit too. As a whole, national budget deficits are set to more than double this year in the EU, from 2.3% of GDP in 2008 to 6% – and to increase to 7¼% in 2010. This is the result of shrinking tax revenues coupled with high public spending to fuel the recovery.

In the worst global recession since the Second World War, the outlook is still uncertain. Much hinges on the after-effects of the financial crisis – how strongly different parts of the economy respond to what is happening elsewhere and how effective fiscal and monetary stimulus measures prove to be.

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 members and several non-EU countries. The smaller interim forecasts – normally published in February and September – review developments since the preceding forecast for the largest economies only.