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05 May 2010

Commission spring forecast 2010-11: gradual economic recovery in progress in the EU


The report also reveals that uncertainty is still high with broadly balanced risks. As the economy is emerging from a recession accompanied by a financial crisis, the recovery crucially relies on the soundness of financial markets, which has yet to be solidly re-established.

The Commission's spring forecast confirms that the economic recovery is in progress in the EU. After having experienced the deepest recession in its history, the EU economy is set to grow by 1% in 2010 and 1¾% in 2011. This implies an upward revision of ¼ percentage point for this year from the Commission's autumn forecast, as the EU countries benefit from a stronger external environment. Nevertheless, weak domestic demand continues to restrain the recovery further out. The speed of recovery is forecast varies across Member States, reflecting their individual circumstances and the policies they pursue. Labour market conditions have shown some signs of stabilisation recently, with the unemployment rate projected to peak this year at a lower level than forecast earlier, yet at close to 10% in the EU. The temporary fiscal measures put in place have been key in turning the EU economy around, but also added to the public deficit, which is set to rise to 7¼% of GDP in 2010, before falling back slightly in 2011.
EU Commissioner for Economic and Monetary Affairs, Olli Rehn, said: "The improved outlook for economic growth this year is good news for Europe. We must now ensure that growth will not be derailed by risks related to financial stability. Sustainable growth calls for determined fiscal consolidation efforts and reforms that enhance productivity and employment."
Uncertainty still high, risks broadly balanced
The EU recovery continues to be surrounded by high uncertainty, illustrated e.g. by the recent tensions in sovereign-bond markets. The forecast is also subject to uncertainty, with broadly‑balanced risks. As the economy is emerging from a recession accompanied by a financial crisis, the recovery crucially relies on the soundness of financial markets, which has yet to be solidly re-established. Also a renewed widening of global imbalances could impact on European growth prospects.
Notwithstanding apparent signs of stabilisation, the labour‑market situation is projected to remain weak. Developments on this front will be of key importance to the recovery process in the EU and could be a potential source of both downside and upside risks, depending also on the effectiveness of policy measures. On the other hand, the rebound in emerging markets and the resulting recovery of trade could boost the EU economy further, beyond what is currently expected. The recent upsurge in confidence (especially in manufacturing) points to some upside risks in the near term. A successful completion of the financial support to Greece can be expected to increase investor and consumer confidence. Risks to the inflation outlook are also broadly balanced.


© European Commission


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