Eurozone economy 'at turning point'

The eurozone is emerging from recession, the European Commission said on Monday, although it kept a gloomy forecast for 2009 despite an improved outlook for the second half of the year.

In its interim forecast, the European Union’s executive said the economy of the 16 countries using the euro would contract by 4% this year—the same as it forecast in May.

“The growth momentum ... has therefore been revised up for the second half of this year. However, the outcome at the turn of the year proved so weak that, despite the new outlook and the better-than-expected outcome for the second quarter, the fall in GDP remains unchanged,” the commission said.

“The EU economy appears to be at a turning point,” it said.

EU Monetary Affairs Commissioner Joaquin Almunia said the improved outlook results mainly from “unprecedented amounts of money pumped into the economy by central banks and public authorities”.

The fiscal stimulus should be kept in 2009 and 2010, but the eurozone and the EU should map out an exit strategy, with budget deficits across the bloc expected to be higher than previously thought, he said in a written statement.

Eurozone inflation in 2009 will be 0,4%, the commission said, keeping its May forecast.
Price growth will still, however, stay well below the European Central Bank’s target of below, but close to, 2%.

The commission said that while inflation risks were broadly balanced, the risk of deflation has diminished because of a rise in commodity prices.

The ECB also forecast earlier this month a smaller contraction for the euro zone and higher inflation after its two biggest economies—Germany and France—staged a surprise exit from recession in the second quarter.

Growth outlook carries significant risks, mainly from mounting unemployment and weak credit.

“Looking into next year, however, uncertainty is rife. There are reasons to believe that the recovery could prove volatile and sub par,” the commission said.

Better outlook for Germany, France
The interim forecasts are for the biggest economies in the 27-nation EU—Germany, France, Italy, Spain, the Netherlands, Britain and Poland, which together account for 80% of the bloc’s gross domestic product.

The commission said the German economy, the biggest in the eurozone, would contract by 5,1% this year, a better figure than the 5,4% forecast in May. Germany’s 2009 inflation is seen at 0,3%.

In France, the second biggest eurozone economy, growth should be -2,1%, compared with -3,0% predicted in May, it said.

Poland, which is not part of the eurozone, would be one of few European countries to see its economy grow in 2009, the commission said. It improved its 2009 growth outlook to 1,0% from -1,4%.

The commission said the economies of Spain, Italy, Britain and The Netherlands would contract more than previously thought.

The EU executive said the eurozone’s economy would grow by 0,2% and 0,1% in the third and fourth quarter respectively, compared with the previous three months.

In the first and second quarter, the economy contracted by 2,4 and 0,2% respectively.—Reuters

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