03 November 2008

Autumn economic forecast - GDP growth close to a stand-still

EU’s economic growth should be 1.4% this year and drop to 0.2% in 2009, the Commission's autumn forecasts says. However, inflationary pressures are diminishing as oil prices fall, and the risks of second-round effects fade away.

European Union economic growth should be 1.4% in 2008, half what it was in 2007, and drop even more sharply in 2009 to 0.2% before recovering gradually to 1.1% in 2010, the Commission's autumn forecasts says. The EU economies are strongly affected by the financial crisis, which is aggravating housing-market correction in several economies at a time when external demand is fading rapidly.

 

Inflationary pressures are diminishing as oil prices fall, and the risks of second-round effects fade away.

 

Global growth is forecast to slow markedly to 3¾% this year and 2¼% in 2009. During 2010, growth is expected to rise gradually as financial markets stabilise, thereby supporting confidence and trade.

 

The outlook remains clouded by considerable uncertainty about who will ultimately bear the brunt of the credit losses and what the scale of the loss will be. Credit conditions have tightened significantly and, recent recapitalisation notwithstanding, the banking sector is expected to continue to deleverage, putting a brake on lending.

 

However, the forecast is surrounded by considerable uncertainty and downside risks, the forecast say. The financial stress could still intensify, last longer or have a more pronounced impact on the real economy, fuelling the negative feedback loop.

 

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