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Latest update : 2009-09-14

As expected by the European Commission, Europe's economy will shrink by 4 percent in 2009. But the Eurozone is predicted to climb out of recession in the third quarter, despite rising unemployment and strained government finances.

AFP - Europe's economy will shrink by 4.0 percent in 2009 but will climb out of recession in the third quarter, the European Commission said on Monday.

But the recovery from recession will be weighed down by rising unemployment and strained government finances.

The headline figure, which was the same for the 16 countries that use the single euro currency as across the European Union's 27 member states, remains identical to the previous forecast in May because tentative signs of recovery are described as "volatile" and "sub-par."

"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," said Economic and Monetary Affairs Commissioner Joaquin Almunia in a statement.

Despite a slew of positive data since May pointing to what the commission said would be "a certain recovery in the coming quarters," the lagging effects of grim recession have already seen unemployment burst through the 15 million barrier in the euro countries -- a watershed last seen in May 1999.

And "because of downward revisions to the previous estimates for 2008 and the first quarter of 2009, the rate of the projected fall in Gross Domestic Product in 2009 as a whole remains unchanged at 4.0 percent in both the EU and the euro area," the statement added.

Brussels' bi-annual interim forecast said inflation in 2009 would also remain unchanged at 0.9 percent across the 27 EU countries, and 0.4 percent throughout the euro nations.

However, EU economists warned that with energy and food prices having reversed their slide, and commodity prices also moving upwards, "the inflation rate is set to increase towards the end of the year."

Date created : 2009-09-14