Tags: EU | Growth | Standstill | europe

EU Sees Growth at Near Standstill by Year-End

Thursday, 15 Sep 2011 07:27 AM

The EU Commission warned Thursday that economic growth in the eurozone will come to a near standstill by the end of the year due to the European debt crisis and the turmoil in financial markets.

In its latest economic forecast, the Commission said the soft patch is likely to persist until spring next year but that a double dip recession would not result.

The Commission forecasts economic growth in the 17 euro countries will be only 0.1 percent in the fourth quarter, down from 0.2 percent in the third. For the second half as a whole, the Commission said it had revised down its prediction from its spring forecast by half a percentage point as the debt crisis has worsened and the financial market volatility has dampened economic activity.

"The outlook for the European economy has deteriorated," said Olli Rehn, the EU's economic and monetary affairs commissioner. "Recoveries from financial crises are often slow and bumpy."

For 2011 as a whole, the Commission kept its forecast unchanged at 1.6 percent, as the second half deterioration was offset by a stronger than anticipated recovery in the first half of the year, particularly in Germany, Europe's powerhouse economy.

To get the recovery back on track, Rehn said it was important that financial stability is safeguarded and budgets across Europe are put on a sustainable path.

"This requires steadfast continuation of the strategy of differentiated, growth-friendly fiscal consolidation and the implementation of the decisions to support financial stability," Rehn said.

For the wider 27-nation EU, the Commission said it expects fourth quarter growth to be 0.2 percent for the third quarter running.

The Commission also said inflation is likely to moderate faster than envisaged in the spring forecast and will drop to 2.2 percent in the fourth quarter. That's down from the current 2.5 percent rate but just above the European Central Bank's target of keeping price rises "close to but below 2 percent."

Earlier this month, the ECB's president Jean-Claude Trichet indicated that the bank would not be raising interest rates again anytime soon as risks to economic growth had intensified. The central bank had raised its main interest rate by a quarter of a percentage point on two occasions since April and it now stands at 1.5 percent.

The Commission added that the outlook is uncertain and the balance of risks to the forecasts are to the downside.

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