EU faces deep, broad recession: European Commission

January 19th, 2009 - 6:24 pm ICT by IANS  

Brussels, Jan 19 (DPA) Europe faces a deep and broad recession this year, the European Commission predicted Monday, with economic activity in the 16-strong eurozone set to shrink by 1.9 percent as a result of the world’s worst economic crisis since World War II.”The economic horizon has now significantly darkened as the European Union economy is hit by the financial crisis that deepened during the autumn and is taking a toll on business and consumer confidence,” the European Union’s executive arm said in presenting its latest economic forecasts.

These predict that Gross Domestic Product (GDP) in the 27-strong European Union will contract by 1.8 points, with consequent steep rises in the member states’ unemployment and budget deficit figures.

GDP in 2008 grew by 1.2 percent in the 16-member eurozone and by 1.4 percent in the EU.

Europe’s economic locomotive, Germany, is set to experience its worst downturn in more than 60 years, with GDP predicted to fall by 2.3 percent year-on-year.

Other European heavyweights such as France, Britain and Italy are also bracing themselves for a painful year, with GDP set to shrink by 1.8, 2.8 and 2.0 percent respectively.

The downturn will push unemployment levels to their highest in a decade, with the EU-wide figure set to hit 9.5 percent by 2010. Average EU unemployment was just 7.0 percent in 2008.

“Except for government consumption and public investment, all demand components are forecast to put a drag on GDP growth,” the commission said in presenting its forecasts.

According to the EU’s executive, economic activity is only set to pick up during the second half of 2009 and return to modest growth levels of around half a percentage point in 2010.

Despite warnings from the bloc’s economic and monetary affairs commissioner, Joaquin Almunia, a slew of member states is set to breach the bloc’s iron rule that governments’ budget deficits should not exceed 3 percent of GDP, causing the euro area’s average to hit 4.0 percent of GDP in 2009.

In the meantime, the only good news continues to come from consumer prices, with the euro area’s annual inflation figure set to fall from 3.3 percent in 2008 to 1 percent this year on the back of falling commodity prices.

The EU executive has called on member states to contribute to an unprecedented economic recovery plan worth 200 billion euros ($266 billion), or 1.5 percent of the EU’s GDP, in public spending.

Measures announced by national governments so far amount to about 1 percent of GDP, the commission said.

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