A gradual recovery is expected with GDP forecast to grow by ¾% in 2010 and around 1½% in 2011 but uncertainty remains high. If the banking sector does not repair its balance sheet, it may not be able to provide sufficient support to the recovery.
Autumn forecast 2009-2011: EU economy on the road to a gradual recovery
The Commission's autumn forecast projects that the EU economy will emerge from recession in the second half of this year, although for 2009 as a whole, GDP is still set to fall by some 4%. A gradual recovery is expected with GDP forecast to grow by ¾% in 2010 and around 1½% in 2011. The near-term rebound in activity follows from improvements in the external environment and financial conditions, as well as from the significant fiscal and monetary policy measures put in place. Further out, a number of factors are set to restrain private demand and thus, the strength of the recovery. In particular, labour-market conditions will remain weak, with the unemployment rate projected to reach 10¼% in the EU. The public deficit is also expected to rise, to 7½% of GDP in 2010, before falling back slightly in 2011 as the economy picks up and temporary measures gradually come to an end.
"The EU economy is coming out of recession. This owes much to the ambitious measures taken by governments, central banks and the EU that have not only prevented a systemic meltdown but have kick-started the recovery. However, the road ahead is a challenging one. To maintain momentum and support the sustainability of the recovery, it is essential that we fully implement all announced measures and complete the repair of the banking sector... ",said Joaquín Almunia, Commissioner for Economic and Monetary Affairs.
Having experienced the deepest, longest and most broad-based recession in its history, the EU economy has reached a turning point. Recent months have seen a marked improvement in the economic situation and financial conditions, largely due to the unprecedented fiscal and monetary policy actions that have been taken. Several financial indicators are now back at pre-crisis levels, while confidence is advancing.
A gradual recovery ahead.
The improved near-term outlook in the EU and abroad is partly the result of temporary factors. As the impact of these fade in the course of 2010, global activity is likely to go through a soft patch. EU export growth is therefore expected to firm only gradually over the forecast horizon. Domestic demand also faces a number of constraints going forward. Reflecting low capacity utilisation, relatively weak demand prospects, subdued profitability gains and still moderating credit growth, investment is not projected to recover until 2011. Although private consumption proved to be a stabilising factor during the recession, spending in the period ahead is set to be held back by the need for deleveraging of households' balance sheets and weak labour-market prospects. A further restraining factor is the estimated adverse impact of the financial crisis on potential output. Thus, following an initial upturn, GDP growth in the EU and euro area is forecast to ease somewhat before regaining ground in the second half of 2010 and beyond.
Uncertainty remains high
The outlook for the EU economy as it emerges from recession is highly uncertain, and subject to non-negligible but broadly balanced risks. The recovery could surprise on the upside if policy measures are more effective than anticipated in restoring the soundness of the financial sector and boosting confidence, or if there is a more pronounced pick-up in global demand. On the other hand, the impact of weak labour-market conditions and constraints on investment could prove stronger than expected. Moreover, if the banking sector does not repair its balance sheet, it may not be able to provide sufficient support to the recovery. Risks to the inflation outlook are also broadly balanced.
© European Commission
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