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The Eurozone economy probably exited recession in the third quarter as a result of fiscal and monetary stimulus measures, the European Commission said Monday. But, there are increased uncertainty about the sustainability of the recovery.
In its interim economic forecast, the Commission said the 16-nation economy is likely to have expanded 0.2% quarter-on-quarter in the third quarter after contracting 0.1% in the second quarter. In the fourth quarter, the economy is forecast to grow 0.1%. For the full year, gross domestic product or GDP is expected to fall 4%, unchanged from May's spring forecast.
"The situation has improved - mainly due to the unprecedented amounts of money pumped into the economy by central banks and public authorities - but the weak economy will continue to take its toll on jobs and public finances," JoaquÃn Almunia, Economic and Monetary Affairs Commissioner said.
"We need to continue implementing the recovery measures announced for this year and 2010 and accelerate the repair of the financial sector to make sure banks are ready to lend at reasonable terms when companies and households resume their investment plans."
Earlier in September, the European Central Bank raised its growth outlook for this year to show an economic contraction of 4.1% versus the 4.6% shrinkage predicted initially. The central bank now sees a 0.2% growth in 2010, a notable upgrade from a 0.3% contraction predicted in June.
The improved economic outlook reflects external conditions being increasingly favorable, the Commission said. Recent data for trade and industrial production, as well as business and consumer confidence, are generally encouraging. The resilient private and public consumption and advancements in the inventory cycle will also support growth in Europe.
Looking into next year, uncertainty is rife also due to the influence of temporary factors. The full impact of the economic crisis on labor markets and public finances is, at least partly, still to be faced.
"We need to define a clear, credible and coordinated 'exit' strategy to put public finances progressively back on a sustainable path and to find the necessary resources to increase Europe's growth and jobs potential," Almunia said.
ECB President Jean-Claude Trichet, who sees an uneven recovery in the euro area, is of the view that it is important for policymakers to consider strategies to withdraw stimulus measures. He sees a gradual withdrawal of emergency measures.
The Commission revised its GDP forecast for Germany to show a fall of 5.1%, slower than the spring forecast of 5.4%. Forecast for France also underwent upward revision to a 2.1% decline from a 3% drop seen earlier. At the same time, the outlook for Spain, Italy and the Netherlands were lowered.
Maintaining the forecast, the Commission said inflation in the Eurozone is expected to be at 0.4% in 2009. That matches ECB's projection.
The Commission also maintained its growth and inflation outlook for the EU27. It sees 4% decline in GDP in 2009 and inflation at 0.9%. In the third quarter, GDP is projected to rise 0.2% and then to grow by 0.1% in the final quarter.
It predicts the British economy to grow 0.2% in the third quarter and then by 0.5% in the fourth quarter. For the full year, the UK economy is forecast to contract 4.3%, quicker than a 3.8% drop anticipated in May.
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