Economic recovery is becoming increasingly self-sustaining at European Union level, but progress across member states remains uneven, the European Commission said Monday.
In its autumn forecast, the commission said it expects the broader EU economy to expand by 1.8% this year before growth slows to 1.7% next year. Compared to the spring forecast released in May, the commission revised up this year's forecast from 1%, while maintained the outlook for 2011.
The euro area real gross domestic product is predicted to grow 1.7% this year, nearly double the 0.9% growth projected earlier. Growth is expected to slow to 1.5% next year. A softening global environment and the onset of fiscal consolidation are cited among the factors leading to a slowdown next year.
"With the projected slowdown in global activity dampening export growth and temporary supports running their course, near-term prospects for the EU economy appear more subdued," the commission said in a statement. The contribution of net exports to GDP growth is set to diminish over the forecast horizon, while the contribution of domestic demand would increase, owing to a gradual firming of investment and private consumption growth.
However, growth in both EU and Eurozone economies are forecast to pick up momentum in 2012. The commission sees 2% growth for EU and 1.8% for the euro area.
European Commissioner for Economic and Monetary Affairs Olli Rehn said the ongoing recovery is uneven, and many member states are going through a difficult period of adjustment. "A determined continuation of fiscal consolidation and frontloaded policies to enhance growth, are essential to set the sound basis for sustainable growth and jobs," he said. "The turbulence in sovereign debt markets underlines the need for robust policy action."
The Commission sees EU budget deficit at 6.8% of GDP this year, gradually falling to 5.1% next year and to 4.2% in 2012. Similarly, the Eurozone deficit is seen at 6.3% this year, 4.6% next year and 3.9% in 2012. During the forecast period, no Eurozone countries are expected make budget surpluses.
Debt-ridden Greece is forecast to remain in recession in 2011 and is seen recovering in 2012 by growing 1.1%. The country's budget deficit is forecast to fall to 7.6% of GDP in 2012 from 15.4% recorded in 2009. During the forecast period, unemployment would increase, the report said, with the rate hitting 15.2% from 9.5%.
Ireland, the second Eurozone economy to accept a bailout this year, is expected to exit recession next year by growing 0.9%. In 2010, the economy would contract 0.2%, according to the report. Dublin's budget deficit, the second biggest in EU, is expected to fall down to 9.1% of GDP in 2012 from 14.4% logged in 2009.
Reflecting fiscal tightening, the German economy is forecast to grow at a slower pace of 2.2% next year compared with an expected 3.7% expansion this year. The French economic growth would be 1.6% this year and next.
Furthermore, relatively subdued consumer-price inflation is in sight in both the EU and euro area over the coming period. This is due to remaining slack in the economy, along with fairly moderate wage and unit-labour cost growth.
Inflation is projected to average 2% in the EU this year and next, easing to around 1.8% in 2012. For the euro area, inflation is seen at 1.5% this year, 1.8% in 2011 and 1.7% in 2012.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.