Europe's economy facing weak growth in 2010

BRUSSELS - Europe's economy is fragile and headed for a year of weak growth, according to an economic forecast report published by the European Commission on Thursday (25 February).

The region's gross domestic product is set to rise a paltry 0.7 percent in 2010, in line with the commission's autumn forecast last year, with inflation set to rise by 1.4 percent.

As a result, Europe needs to work on two fronts, the EU's recently appointed economy commissioner Olli Rehn told a news conference in Brussels.

"The new Europe 2020 Strategy leading to the modernisation of our economies should go hand-in-hand with the consolidation of public finances," he said. The commission will produce a communication on the 10-year economic plan on 3 March, with EU leaders set to discuss the topic at a summit later that month.

Thursday's forecast report looked at the bloc's seven largest economies which account for roughly 80 percent of its economic activity.

Spain remains the only large state where a further contraction, 0.6 percent of GDP, is forecast for this year, as the housing sector continues to undergo a major adjustment.

Poland, on the other hand, was the only member state where growth remained positive throughout 2009, with eastern Europe's largest economy forecast to enjoy growth of 2.5 percent this year.

Disinflation trends seen in 2009 have ceased to exist, says the report, but financial market turbulence, potentially leading to higher borrowing costs for European businesses later this year, is still of concern.

Acknowledging the choices facing national governments, under pressure to cut budget deficits but also to increase spending on areas such as education and investment, Mr Rehn said there was a "miraculous way to square the circle."

"The only way is to priorities spending in national budgets," he said.

The commission's report also highlights the diverging nature of European and developing economies at present, with global economic activity proving more robust in the second half of 2009 than previously expected, especially in emerging Asia.

"In my view we should certainly be concerned about this and I think it is a further factor which underlines the necessity of modernising our economies," said Mr Rehn.

In an open letter on Wednesday, the president of the Party of European Socialists, Poul Nyrup Rasmussen, told European Commission President Jose Manuel Barroso he was concerned the commission was making bold statements about the EU's future without backing them up with concrete actions.

"If there is truly a commitment to ‘transform the EU', then there would be a clear set of practical steps outlined," says the letter. "But all we are seeing from this commission president is an attempt to put shiny new packaging on discredited neo-liberal ideas. They are not fooling anyone."