Press Release: Autumn economic forecast 2007-2009: growth moderating

Growth in the European Union economy is expected to decelerate from 2.9% in 2007 to 2.4% in both 2008 and 2009 (from 2.6% to 2.2% in 2008 and 2.1% in 2009 in the euro area) according to the Commission’s autumn economic forecast. This follows from the impact of the turbulence in the financial markets that has caused tighter financing conditions and increased uncertainty. However, a still benign global environment and solid fundamentals limit the downward revision to 0.3 percentage points (pp.) in 2008 for both areas compared to the spring forecast. In particular, private consumption, which became the main driver of growth earlier this year, is expected to grow at a healthy pace, underpinned by relatively sustained employment growth. The EU as a whole is predicted to create 8 million new jobs over the period 2007-2009, on top of the 3.5 million already created in 2006. This will help reduce EU unemployment to 6.6% in 2009. Thanks in part to this healthy economic activity, the budget deficit for 2007 in both the EU and the euro area is forecast to fall to its lowest level in many years, averaging 1.1% of GDP in the EU and 0.8% in the euro area. The structural deficit is also expected to improve this year, albeit to a lesser degree, though fiscal consolidation will come to a halt thereafter. Inflation is set to increase in the coming quarters as a result of higher commodity prices, but should fall back to around 2% by mid-2008 in the euro area.