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The Commission of the European Union has yesterday published its latest interim economic forecast. The underlying message of this update of GDP and inflation variables is that the EU economy, while still fragile, is recovering at a faster pace than previously envisaged. The updated projections include France, Germany, Italy, the Netherlands, Poland, Spain and the United Kingdom. The seven countries concerned represent 79% of EU and almost 83% of Euro area GDP.
Based on an update of the outlook for the seven largest Member States, GDP is now expected to expand by +0.5% in the EU and Euro area in the third quarter and by +0.4% and +0.3% respectively in the fourth. This represents a slight upward revision compared to the Spring forecast, mainly on account of spill-over of the momentum from the second quarter.
For 2010 as a whole, GDP growth is now forecast at +1.8% in the EU and +1.7% in the Euro area. This represents a sizeable upward revision compared to the spring forecast (+1.0% for the EU and +0.9% for the Euro area).
Looking ahead, the headline inflation rate for 2010 is expected to hold at +1.8% in the EU, while in the Euro area it is marginally revised down to +1.4% (-0.1 percentage points compared to the Spring forecast).
Uncertainty at the current juncture is high, with non-negligible risks to the EU growth outlook. On the upside, the impetus from the export-led industrial rebound to private consumption could prove stronger than assumed in the baseline, as was the case in the first half of the year. On the downside, softening global demand in the second part of 2010, beyond that allowed for in the baseline, could pose a risk for EU export growth.
To read the full Interim Forecast please click here