EU economy strong, but clouds gathering, Almunia warns
Recent financial turmoil, the US economic slowdown and soaring oil prices are taking their toll on the EU economy, cutting growth forecasts and upping inflation, according to the European Commission.
On Friday (9 November), economic affairs commissioner Joaquin Almunia presented the commission's economic forecasts for 2007 and the coming two years.
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While Mr Almunia generally spoke in a positive tone about the EU economy, he stressed that several problems were dragging down the economic outlook of the bloc.
"Clouds have clearly gathered on the horizon with this summer's turbulence in the financial markets, the US slowdown and the ever-rising oil prices," the commissioner warned, revising down the growth prospects of the coming two years.
"This year, for 2007, we are estimating today a growth rate of 2.9%, that's quite a good one, slightly higher than in our interim forecast in September. (...) The same happens in the euro area, 2.6% for this year," the commissioner said during the press conference.
But he added that "for next year, growth is expected too slow down somewhat" both in the EU and in the euro area, with the commission forecasting 2.4% growth in the EU in 2008-2009, and 2.2% (2008) and 2.1% (2009) in the eurozone.
The commission pointed to possible disruptions in financial markets and the possibility of a sharper or more protracted economic slowdown in the US when identifying the main risks to growth.
Thanks in part to the current healthy state of the European economy, the budget deficit for 2007 in both the EU and the euro area is forecasted to fall to its lowest level in recent years, averaging 1.1% of GDP in the EU and 0.8% in the euro area.
In addition, the level of general government debt is on the decline, expected to reach 63.4% of GDP in the euroarea by 2009 and to fall below 60% in the EU in 2007.
Millions of new jobs
Unemployment meanwile is likely to continue to drop, with new jobs being created in both the EU and the eurozone.
The commission estimated that an additional 4.5 million jobs – 3.2 million in the eurozone - will be created in the EU the next two years, adding to the 3.5 million jobs created in 2007.
As a result, employment is expected by 2009 to drop from the current 7.3% to 7.1% in the euro area and in the EU from the current 7% to 6.6% with labour shortages becoming more common.
On the issue of inflation, Mr Almunia warned that oil and commodity prices were going up. Currently, oil prices are nearing the $100 per barrel threshold.
The inflationary pressures of these exceptionally high oil prices are partially offset by the rising strength of the euro on exchange rate markets, with Europe paying for its oil in cheap dollars.