The interim forecast for the economic growth in the EU for the year 2009, which was introduced this Monday by Commissioner Joaquín Almunia in Brussels, drew attention to a surprisingly positive outlook. For the first time in a year, the overall forecast for 2009 did not have to be subsequently adjusted downwards. In “lean times such as this” such a statement is enough to be hailed as a success story. The prospects for the labour market and the emerging high national debt, however, are breathing down the Commissioner’s neck. The European Central Statistics Office, however, projects a reduction in the number of employed people within the EU27 by 1.4 million (about 0.6 %) within the space of only one quarter.
Economic stimulus packages shall continue in spite of recovery

It is exactly a year ago that the US-American Investment bank Lehman Brothers collapsed. Last Monday, the Commissioner Joaquín Almunia, DG Economic and Financial Affairs, for the first time gave a cautious "all clear" signal. The economic stimulus packages, passed by the Member States and the unprecedented vast amounts of liquidity that the Central Banks had been pumping into the economy have significantly contributed to the easing of the economic situation. Recently, both the Commission as well as the European Central Bank made several statements to the effect that the point, where measures to support the economy should be terminated, had not yet been reached, that it was necessary, however, to start thinking about a coordinated exit strategy - not least for stabilising public spending.

In accordance with the interim forecast for the EU27, published on Monday, which is based on the seven largest economies, the bottom of the recession in the first Quarter 2009 (with -2.4% GDP growth compared to the previous quarter) has probably been reached. At only -0.9% GDP growth, the second quarter turned out to be much better than expected. At -4%, the overall forecast for 2009 remains unchanged, both within the EU27 as well as in the euro area. It should not go unmentioned at this point that compared to the previous year the GDP in the EU27 after all decreased by 5%.

No need to be afraid of deflation

At 0.9% for the EU27 and 0.2% for the Eurozone, the inflation forecast of the Commission also remains unchanged, whereby the Commission regards price stability as guaranteed. The danger of deflation seems to have disappeared; the prices of raw materials are also on the increase again. For consumers, the low inflation rate has a positive impact on their available income.

Several economic indicators point to stabilisation

Current surveys, which measure the trust of entrepreneurs and consumers in the economy, such as the “Economic Sentiment Indicator” of the Commission and the “Business Cycle Tracer”, point to a stabilisation of the situation and slightly raise the hope for a positive economic growth in the second half of the year.

Although exports and imports within the EU fell by 17% and 16% respectively compared to the first quarter of 2008, net exports in the 2nd quarter for the first time again contributed positively to the economic growth.

Bernanke too is confident

The USA has recovered more quickly from the crisis than Europe – in particular with regard to economic growth. Growth will be positive in the third quarter, said Ben Bernanke, Federal Reserve Bank Chairman, on Tuesday following a speech marking the one-year anniversary of the collapse of Lehman Brothers. It would, however, take some time for the workforce in the USA to notice the end of the recession, as the situation in the labour market would remain to be very tense.

Unemployment expected to increase further

The Commission expects that the worst is yet to come for the labour markets in the EU27. This expectation is supported by an initial estimate of the European Central Statistics Office for the second quarter of 2009: according to this, in the second quarter of 2009, the number of employed persons within the Eurozone - compared to the previous quarter - has fallen by 702,000 persons (0.5%). The EU27 shows a decrease of 1,443,000 persons (0.6%). By annual comparison, employment in the Eurozone even fell by 1.8% and 1.9 % within the EU27 respectively. Although the measures implemented as a result of the recession to support the labour market are currently still continued, some of the positive effects, however, will peter out at the end of the year. If the economy does not stabilise quickly one has to expect that some of the companies affected will no longer make use of the government-funded measures for short-time working, but will resort to make employees redundant.

Further information:

Interim forecast of the European Commission

EUROSTAT estimate for people in work for the second quarter