European economy recovering sooner than expected

Growth expected to return in the second half of 2009. Forecasts are still uncertain but fears of a severe, prolonged recession are fading.

The EU economy is showing clear signs of recovery and looks set to return to growth in the second half of 2009. However, with the strong downturn at the end of 2008 and start of the year, the forecast for 2009 as a whole remains unchanged: GDP is expected to fall by 4% in both the EU and the eurozone.

To some extent, the improving outlook for Europe reflects brighter prospects around the world. Some regions – notably emerging Asian economies -- anticipate marked growth over the next 6 months.

But there are other specifically European reasons for optimism too. Conditions on financial markets have improved, and economic activity is picking up, boosted by car-scrapping schemes and other forms of government spending.

Consumer price inflation declined in the first half of the year, as the cost of energy and food eased off from last year’s highs. But with most commodities on the rise, inflation rates are expected to increase toward the end of 2009.

For the year as a whole, consumer price inflation will likely remain unchanged at 0.9% in the EU and 0.4% in the eurozone. The outlook for next year remains uncertain, with job markets and public finances still feeling the effects of the economic crisis.

The coming recovery could be surprisingly strong. Whether it can be sustained remains to be seen. The Commission's next forecast, due out in November, will look ahead to the end of 2011 for all 27 EU countries.

The Commission usually publishes economic forecasts 4 times a year – comprehensive spring and autumn forecasts and smaller interim forecasts in February and September.

This interim forecast is based on updated projections for France, Germany, Italy, the Netherlands, Poland, Spain and the UK – together accounting for some 80% of the EU’s GDP.