Financial market crisis stalls EU economic recovery – Commission

15 September 2011 13:49  [Source: ICIS news]

LONDON (ICIS)--Economic growth in the EU stalled in the second quarter of 2011 after growing strongly in the first quarter, amid crises in the financial market, the European Commission said on Thursday.

In an interim forecast, which contains updated projections for GDP and inflation for the seven largest EU member states, the eurozone and the EU for 2011, it added that growth is now expected to remain subdued in the second half of the year, coming close to a standstill at year-end.

The Commission added that a “soft patch” predicted in its spring forecast is now likely to deepen with growth predictions for the second half of the year being revised down by half a percentage point for the EU and the eurozone, following signs emerging over the summer of a more extensive weakening in global demand and world trade.

However, the Commission added that the slowdown would not result in a double-dip recession. It also said GDP growth for 2011 as a whole is set to remain unchanged from the spring forecast of 1.7% in the EU and 1.6% in the eurozone, following a stronger-than-expected performance in the first quarter.

“The outlook for the European economy has deteriorated. Recoveries from financial crises are often slow and bumpy,” said EU economic and monetary affairs commissioner Olli Rehn.

“The sovereign debt crisis has worsened, and the financial market turmoil is set to dampen the real economy. To get the recovery back on track, it is crucial to safeguard financial stability and put budgets on a path that is sustainable beyond doubt,” he added.

Forecast quarterly growth rates for the EU and eurozone were revised down by about a quarter of a percentage point. Growth projections for the EU are now at 0.2% in both the third and fourth quarter, and 0.2% in the third and 0.1% in the fourth quarter for the euro area.

“The downward revisions concern all the member states under review, suggesting both a common factor and the high level of interconnection of our economies. Nonetheless, growth is expected to remain uneven across member states,” the Commission said.

It added that global output is now projected to grow by around 4% in 2011, a downward revision of about half a percentage point compared with the spring forecast, as financial market conditions deteriorated on the back of “contagion of the sovereign debt concerns in the eurozone and anxiety about the outlook for growth and fiscal sustainability in the US”.

In addition, uncertainty about the economic outlook remains high with some of the downside risks considered in the spring forecast now materialising.

“In particular, the global economy has slowed down, and hopes that the sovereign debt crisis would gradually dissipate have been disappointed,” the Commission said.

The next interim forecast covering all EU member states and looking further ahead will be released in November.

By: Franco Capaldo
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