New figures published by BusinessEurope yesterday (7 September) predict a stabilisation of economic activity until the end of the year with a slight upturn predicted in 2010.
But the recession's bite will have long-lasting consequences mainly for investment, employment and public finances, the group warned in its autumn economic forecast.
Europe's GDP will shrink by 3.9% this year and increase moderately by 0.7% in 2010, according to the data released on Monday. Spain and Belgium are the only two countries in the report whose GDP is expected to decline in 2010. This outlook is still a less brutal contraction than the 4.1% drop forecast by the Organisation for Economic Cooperation and Development in June though the organisations' latest figures also show a slight upturn in the euro area and an earlier recovery than predicted.
Inflation will remain low at 0.3% this year, according to BusinessEurope, and rise to 1.3% in 2010. Unemployment, which stands at 9.8% for this year, is expected to rise to 11.3%. Large dips in employment are expected in Spain, the UK and Belgium, according to the group, with Ireland and Lithuania bearing the greatest burden at 13% and 11% respectively.
The predictions, which precede the Commission's interim economic forecasts, expected next week, reaffirm the consensus among ministers at a G20 meeting in London at the weekend that it is too soon to speak of exit strategies. "Withdrawing stimulus measures prematurely or merely reverting to tax hikes would obliterate any hope of sustained economic revival," the outlook warns.
But conditions remain volatile and predictions for fixed capital investment remained bleak due to constrained access to finances, BusinessEurope says. The report forecasts investment to nosedive by 10.3% with a further reduction by 1.8% next year.
The prospects for a recovery in capital markets will be constricted further by the G20 ministers' commitment to tougher capital rules on banks. Though opinions at the London summit varied on exactly how tough a new regime would be, ministers broadly agreed with the US Treasury Secretary Timothy Geithner's proposed reforms, which would see banks put aside enough capital to avoid further bailouts (EurActiv 07/09/09).
