Europe emerging from recession, says EU

Brussels — The European Union’s economy is climbing out of recession, the European Commission said on Monday, but will still shrink by 4.0 percent over the course of 2009.

A "volatile" and "sub-par" recovery will be weighed down by rising unemployment and strained government finances, posing awkward questions for political leaders faced with agreeing the phased withdrawal of state funding.

The 4.0 percent overall contraction, which was the same for the 16 countries that use the single euro currency as across the EU’s 27 member states, produced the same figure for the drop in Gross Domestic Product as the previous forecast in May.

But the route to that outcome has changed significantly, with 0.2 percent growth forecast for the present three-month period to the end of September and further growth of 0.1 percent predicted for the year’s final quarter.

The May forecast had assumed a 0.3 percent slide in the third quarter, with positive growth, of 0.1 percent, not originally expected until the second quarter of 2010.

Economic and Monetary Affairs Commissioner Joaquin Almunia said a sharp upturn in the global economy meant "the drop is behind us," but that it was based mainly on stimulus measures that "will not be there forever."

He said governments and the commission have to agree beforehand on when, where and how to withdraw support packages to the financial sector, while controlling public deficits in the medium term.

Otherwise, he said, they "will create protectionist tensions and inefficiencies".

The global credit crisis forced EU governments to pledge more than EUR 3.77 trillion to prop up banks, although some have begun to turn a profit on these debt-buying sprees.

Despite a slew of positive data since May, the lagging effects of recession have already seen unemployment burst through the 15-million barrier in the euro countries — and Almunia said that those numbers would continue to rise.

"The situation has improved — mainly due to the unprecedented amounts of money pumped into the economy by central banks and public authorities — but the weak (broader) economy will continue to take its toll on jobs and public finances," he underlined in a statement.

"The full impact of the crisis on labour markets and public finance is still to come, and the correction in housing markets continues to hold back construction investment in several countries."

The commission’s bi-annual interim forecast said inflation in 2009 would remain unchanged at 0.9 percent across the 27 EU countries and 0.4 percent throughout the euro nations.

However, Almunia warned that with energy and food prices having reversed their slide, and commodity prices also moving upwards, "headline inflation will increase towards the end of the year."

Nervous consumers across Europe, many cushioned from the worst of the recession thanks to ultra-low interest rates, fear a double-whammy of rising repayments on loans and a sharp escalation in prices when the drip-feed of state economic support is eventually scaled back.

The projections are calculated from data drawn from Britain, France, Germany, Italy, the Netherlands, Poland and Spain, which together account for 80 percent of the EU’s GDP.

Germany is expected to lead the recovery with the greatest third-quarter surge, with Spain heading towards "stabilisation" and Italy showing "gradual improvement," Almunia said.

The Netherlands will end its recession later, but Poland, which recorded the fastest growth, was now experiencing slower growth.

Britain will also "return to positive territory before the year’s end," he added.

British labour unions warned on Monday of unrest in anticipation of drastic public sector cuts in the wake of a general election there due by May 2010.

AFP / Expatica