The eurozone area will return to growth rather than continual contraction with 0.7% European GDP growth in 2010 and 1.5% growth in 2011, according to the European Commission. On 3 November the EC’s semi-annual economic forecast raised its EU GDP 2010 projections, despite rising budget deficits and unemployment rates.
Europe finally showed signs of economic recovery in the third quarter of 2009, but increasing unemployment levels alongside a disparity of growth in eurozone countries, could threaten the general recovery process. This uneven EU GDP growth may make the European Central Bank’s (ECB) job of gauging the 2010-11 recovery harder.
European companies have reported signs of growth and recovery and have also reported earnings that suggest record-low interest rates, which sheds light on how emergency stimulus packages helped to feed back into the economy. The ECB still warns member states to start consolidating by 2011 to avoid paying higher interest rates when stimulus measures has been removed.
Although the third quarter showed an increase of 0.4% in economic expansion, the economies of Greece, Finland and Spain have still showed signs of contraction. Similarly, European constituents such as the UK have shown 0.4% contraction per quarter.
With unemployment and deficit rates rising for most major EU countries such as Germany, France and Spain, the entire euro-nation area will contravene the EU GDP deficit limit of 3% of GDP in 2010 and 2011.
Senior economist for the Centre for Economics and Business Research Ltd in London, Charles Davis said the percentage by which the UK economy has been contracting does ‘not make pleasant reading’. Davis goes on to compare other European countries that have experienced higher quarterly contractions: ‘According to the data, only Cyprus, Estonia, Hungary and Romania suffered larger quarterly contractions in GDP than the UK in the third quarter.’
EU Monetary Affairs Commissioner Joaquin Almunia said: ‘In 2011, I think everybody should start the consolidation… major challenges persist for the near term; we are optimistic but we see in 2010 and 2011 only a gradual recovery.’
