European Commission Sees Eurozone Growth In H2; Raises 2010 Outlook

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The European Commission expects eurozone to grow in the second half of 2009 on strengthening global growth outlook. Also, the Brussels-based commission raised its economic forecast for 2010.

According to the latest autumn forecast of the EC, the 16-nation bloc is set to contract 4% this year, unchanged from its interim economic forecast released on September 14. The commission sees a gradual recovery with GDP growing 0.7% in 2010 and around 1.5% in 2011. The commission raised its forecast for 2010 from the 0.1% fall predicted in the Spring forecast.

For European Union, GDP is estimated to grow 0.7% next year after shrinking 4.1% in 2009. The 2009 economic forecast was downwardly revised from 4% expected previously. The EU economy has reached a turning point, said the commission. 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.

"The EU economy is coming out of recession", Joaquín Almunia, Commissioner for Economic and Monetary Affairs said. "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."

The commission painted a more positive picture than what the International Monetary Fund had given in its world economic outlook in October. The Washington-based lender forecast a 4.2% contraction this year for eurozone and a 0.3% growth in 2010.

Further, the commission lowered its Eurozone inflation outlook to 0.3% this year from 0.4%. Inflation is set to rise to 1.1% in 2010 and to 1.5% in 2011, the autumn forecast revealed. The European Central Bank aims to keep inflation rates below, but close to 2% over the medium term. Earlier in its Spring forecast, the commission had estimated an annual inflation rate of 1.2% for 2010.

Inflation in the EU and euro area is expected to rebound somewhat from its current, very low level, but to remain subdued over the forecast horizon. Rising commodity prices are set to add upward pressure on inflation, but considerable slack in the economy and weak wage growth would have a dampening effect. EU annual inflation is seen at 1% this year and 1.3% in 2010.

The commission noted that public finances have also been hit hard. The eurozone budget deficit is seen at 6.9% of GDP in 2010 compared to an estimated 6.4% this year. In EU, the government deficit is projected to triple this year to close to 7% of GDP, reflecting measures taken to support the economy and a stronger than usual fall in revenue amid the downturn.

Meanwhile, the EA-16 jobless rate is seen at 10.9% in 2011, up from 10.7% next year. The commission said although the EU labor market has been more resilient to the recession than expected, an increase in labor shedding is expected in the coming quarters.

Now, the largest Eurozone economy, Germany is forecast to expand 1.2% next year, following a 5% decline in 2009. Meanwhile, France is set to shrink 2.2% this year and to grow 1.2% in 2010. The Italian economy is set to contract 4.7% in 2009 and to grow 0.7% in 2010. However, the commission sees a 0.8% fall next year in Spain's GDP after a 3.7% drop this year.

The European Commission expects eurozone to grow in the second half of 2009 on strengthening global growth outlook. Also, the Brussels-based commission raised its economic forecast for 2010. (Market News Provided by RTTNews)