MercoPress. South Atlantic News Agency

EU expects slowdown and higher inflation in 2008/09

The marked slowdown in global activity, United States on the brink of recession and persisting financial turmoil are expected to have an impact on the European Union in the next 24 months with slower economic growth and higher inflation.

The European Commission's spring economic forecast sees growth in the EU decelerating from 2.8% in 2007 to 2% in 2008 and 1.8% in 2009 with a similar trend for the Euro zone but at a slightly lower level of growth: 1.5% in 2009. EC argues that slower growth should be seen in the context of the marked slowdown in global activity, with the US on the brink of recession, continued turbulence in the financial markets and soaring commodity prices. But the EU economy should hold up relatively well in the face of these external shocks, due to sound fundamentals. Following rapid increases in food and energy prices, inflation is expected to rise briefly to 3.6% this year (compared with 2.4% in 2007), before returning to 2.4% in 2009. Again, the Euro-zone should follow this pattern, albeit at a level some 0.3% lower. The labor market is also likely to feel the pinch, but 3 million new jobs are expected in 2008-09 on top of the 7.5 million already created in 2006-07. Unemployment should bottom out at 6.8% in the EU this year (7.2% in the Euro-zone). Following several years of fiscal consolidation by EU governments, budget deficits are projected to increase somewhat overall in the forecast period - to 1.2% of GDP in the EU and 1.0% in the Euro-zone (in 2008). For 2009, based on a no-policy-change assumption, the deficit should broadly begin to stabilize concludes the EC.