‘EU recession risks real’ (Lead)November 3rd, 2008 - 8:32 pm ICT by IANS
Brussels, Nov 3 (DPA) There is a “real risk” of the world’s largest economy sliding into recession, officials warned Monday as the latest forecasts showed European Union (EU)’s growth grinding to a halt in 2009 on the back of the global financial crisis.”Recession is a real risk, for some countries, for the euro area, and for the EU,” European Economic and Monetary Affairs Commissioner Joaquin Almunia said.
According to the commission’s latest predictions, gross domestic product growth (GDP) in the 27-member EU will slow to 0.2 percent in 2009, before accelerating to 1.1 percent in 2010.
“The EU economy is hit by the financial crisis that deepened during the autumn and is taking a toll on business and consumer confidence”, Almunia said.
As a result, “the European growth engine is at a standstill,” he said.
While they make for bleak reading, the EU’s 2009 figures are better than those of the US and Japan, whose economies are expected to shrink by 0.5 percent and 0.4 percent respectively.
But with officials in Brussels stressing that their predictions are surrounded by “considerable uncertainty and downside risks”, Almunia urged member states to rapidly adopt a common recovery programme in order to avoid a prolonged period of economic decline.
“National action is needed, and national action is much more efficient when it is coordinated with a common vision and a common discussion on who, when and how should strengthen investment decisions or fiscal policies or structural reforms,” Almunia said.
Of the EU’s four biggest economies, Britain is almost certain of facing a full-blown recession in 2009, with its gross domestic product shrinking by one percent. Germany, France and Italy are all expected to post zero growth rates next year.
And with Europe’s economic locomotives all grinding to a halt, GDP in the expanding eurozone is set to grow by just 0.1 percent in 2009 and by 0.9 percent in 2010.
Among the EU member states expected to feel the full pain of the downturn are its so-called “tiger economies” - Ireland, Estonia and Latvia - which after recording double-digit growth rates over the last five years are now facing a lasting recession.
Spain, the EU’s fifth biggest economy and formerly once of its strongest economic performers, is also set to tip into recession, with its economy shrinking by 0.2 percent in 2009 before growing by a painfully slow 0.5 percent in 2010.
And only among the EU states which joined the bloc in 2004 and 2007 does the economic outlook seem more promising.
Slovakia, which is set to become the 16th country to adopt the euro in 2009, will likely see its economy grow by 4.9 percent, the best in the bloc ahead of Romania (4.7 percent) and Bulgaria (4.5 percent).
Because tax receipts tend to fall - and public spending to increase - during times of crisis, the economic slowdown is also expected to worsen the budget deficits of many EU member states.
France, which has already been cautioned by Almunia, is expected to see its deficit hit the 3 percent of GDP upper limit this year and to exceed this limit in 2010.
Ireland, meanwhile, is already facing disciplinary action from the EU, with forecasts showing its budget deficit surging to 5.5 percent of GDP this year and to 7.2 percent in 2010.
Worst still, the EU’s overall budgetary position is also set to deteriorate as a result of the various financial rescue packages being put into place by member states in order to counter the effects of the credit crunch, officials warned.
And with unemployment also set to rise by a full percentage point to 8.1 percent in 2010, the only good news is likely to come from inflation, which is expected to fall rapidly to 2.5 percent in 2009 after peaking in 2008.