Gloomy economic outlook as inflation hits new record

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Amidst an overall worsening of economic indicators, inflation in the euro zone has reached a new record high, according to Eurostat estimates published yesterday (31 July).

After a 4% rise in June, inflation is expected to hit 4.1% in July, the highest level since the creation of the euro zone in 1999. Furthermore, none of the euro countries will meet the EU-wide target of maintaining inflation below 2%, Eurostat says (see Links Dossier  on Stability and Growth Pact).

Eursotat says the increasing inflation is mainly due to an ongoing rise in food and fuel prices, which negatively affects other economic indicators. As the Commission revealed on Tuesday (29 July), economic activity has continued to decline in the EU and the euro zone, now standing below its long-term average. 

This is due to an overall decrease in demand, with export expectation also dropping significantly, according to the Business Climate Indicator (BCI). 

Business and consumer confidence has reached its lowest levels since March 2003, dropping by 5.8 points in the EU as a whole and by 5.3 points in the euro area. Large member states such as Italy and the UK are faced with the largest drop (-9.6 and – 7.2 points respectively). 

In the UK, one of Europe’s fastest growing economies throughout the1990s, recession fears seem to turn into reality. According to latest figures presented by the UK National Office of Statistic yesterday (31 July 2008), the British economy witnessed its slowest growth since 2001, with GDP expanding only 0.2% in the last three months. 

Compared to last year, GDP grew 1.6%. For this year, the economy is expected to rise 1.8%. 

Despite the worsening outlook, the International Monetary Fund (IMF) still expects the UK to perform better than the world’s other economic heavyweights, such as the euro zone 1.7%), the US (1.3%) and Japan (1.5%). 

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