Global turmoil hitting EU economy worse than feared

Source http://euobserver.com/9/26724/?rk=1

The European Commission has admitted the global financial turmoil has caused more trouble for the EU economy than Brussels had expected, and has trimmed down its earlier GDP forecasts for the year, predicting a recession for Germany, Spain and Britain.

In an interim economic review published on Wednesday (10 September), the EU executive suggested that the 27-strong bloc's GDP in 2008 would most likely only rise by 1.4 percent and not two percent as earlier predicted.

According to the forecast for the 15-member-state euro area, its economy would rise by 1.3 percent, against previous projections of 1.7 percent.

"With this forecast, we are recognising that the financial turmoil and the external shocks have provoked in the European economies a sharper than expected slowdown," commented EU economy commissioner Joaquin Almunia.

The bloc's poor performance has been heavily influenced by a slowdown in some of the biggest economies. Germany is predicted to fall in recession in the second and third quarter of this year and Britain and Spain in the third and fourth quarter.

Of the seven largest countries, representing 80 percent of the EU's economy and reviewed as part of the interim report, Italy is due to see the lowest GDP growth this year within the EU - just 0.1 percent, with France expecting 1.0 growth and Britain 1.1 percent.

On the other hand, Poland's economic growth is predicted at 5.4 percent, the Netherlands 2.2 percent and Germany - despite expected contractions - at 1.8 percent.

Apart from economic stagnation, consumer prices are also still raising concerns, although Mr Almunia has indicated that the inflation seems to be at a "turning point" after slipping to 3.8 percent in the eurozone from record rates of four percent in July.

Still, despite expecting consumer prices to ease in the coming months, Brussels lifted its 2008 inflation forecast for the euro area to 3.6 percent from 3.1 percent predicted in spring, well above the European Central Bank's desired inflation rates of close to two percent.