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The Eurozone and EU27 economies may fail to find growth momentum in most of 2010 as temporary stimulus measures are phased out gradually and deterioration in the region's labor market continues, latest set of forecasts from the European Commission showed Thursday.
In its interim forecast, the commission, which is the executive arm of the European Union, said the economy of 16 nations would expand 0.2% in the first, second and third quarters of this year on a sequential basis. Growth is anticipated to nudge up to 0.3% in the final quarter.
In the fourth quarter of 2009, the Eurozone economy expanded 0.1%. For the whole of 2010, the commission forecasts 0.7% growth, unchanged from autumn forecast released in November 2009. It follows 4% contraction in 2009. The commission's quarterly and whole year outlook for EU27 are similar to that of euro area.
"With the main driving forces being still temporary in the EU and globally, the robustness of the recovery is yet to be tested, and a soft patch later this year is accordingly to be expected in the EU as well as in most developed economies," the Brussels based-commission said in a statement.
It noted that recent data for both the euro area and EU27 send mixed signals about the pace of the recovery. While a better-than-expected external environment could spur exports further, investment remains very weak and the labor market continues to deteriorate.
The commission maintained its forecasts for the major three Eurozone economies compared to autumn forecast. The German and French economies are expected to grow 1.2% in 2010 and Italy is anticipated to expand 0.7%.
Growth outlook for the Netherlands was revised up to 0.9% from 0.3% predicted earlier. Meanwhile, the prospects for Spain improved. The commission now sees 0.6% contraction in the Spanish economy in 2010, better than a 0.8% fall forecast in November.
Further, the commission maintained its 2010 inflation outlook for Eurozone at 1.1%, while revised up the forecast for EU27 to 1.4% from 1.3%. Compared to 2009, inflation is expected to accelerate in Germany, France, Italy and Spain, while ease in the Netherlands.
Regarding the region's labor market, the commission said survey indicators suggest that the deterioration in the situation could level off in the course of 2010. There were no significant changes in the labor market outlook compared to autumn forecast.
Turning to public finances, available information suggests that, in line with the broadly unchanged outlook for economic activity, the 2010 budgetary position in the EU and the euro area should be broadly as expected in the autumn forecast, the commission said. In the autumn forecast, the commission had forecast euro area government deficit to rise to around 7% of GDP in 2010 and to 7.5% in the EU27.
Out of the currency bloc, the commission lowered its outlook for the U.K. economy. It now forecasts 0.6% growth in 2010, down from 0.9% expansion predicted in the autumn forecast. Inflation outlook for this year was revised up to 2.4% from 1.4%. Inflation stood at 2.2% in 2009.
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