End of recession in sight, says European Commission

 

THE END of Europe’s recession is in sight, the European Commission indicated yesterday.

The prediction comes in spite of the commission having revised its growth forecasts sharply downwards, warning that job cuts in the next two years would almost wipe out gains in employment since 2006.

Action by governments and central banks should “put a floor under the fall in economic activity this year and enable a recovery next year”, said Joaquín Almunia, the European Union’s economic affairs commissioner.

However, the EU’s executive arm warned of a “sharp deterioration” in public finances, especially in the UK, and predicted a total of 8.5 million jobs would be lost in the 27-country region this year and next – compared with 9.5 million jobs created in the 2006-2008 period.

The cautious assessment of European growth prospects came ahead of Thursday’s European Central Bank (ECB) interest rate setting meeting.

The ECB’s governing council is expected to agree a cut in official euro zone borrowing costs from 1.25 per cent to 1 per cent, but remains divided on whether rates will then have reached a floor.

ECB president Jean-Claude Trichet has said additional “non-conventional” measures will also be under consideration.

Speaking yesterday in Brussels, Lucas Papademos, ECB vice-president, noted signs of the economy “stabilising” but echoed a warning by Mr Almunia that the continent’s recovery depended on repairing and strengthening banks’ balance sheets.

The openness of Europe’s economies left them badly exposed to the collapse in global demand that followed the failure of Lehman Brothers last September.

Germany, Europe’s largest economy, is expected to fare far worse this year than the UK or US, even though it did not experience a housing market bubble.

Evidence that the worst of the continent’s recession is over was strengthened yesterday by revised April euro zone manufacturing sector purchasing managers’ indices, which were better than initially reported and showed the slowest rate of decline in activity in six months.

Stocks of goods and raw materials declined at the fastest rate since the survey began in June 1997, which could help boost production in coming months.

The EU and 16-member euro zone will contract by 4 per cent this year – more than twice as fast as it had expected in January, the commission’s forecast showed.

In spite of its expectations of a recovery in 2010, the commission still expected euro zone and EU gross domestic product to contract by 0.1 per cent next year.

EU public sector deficits, meanwhile, were expected to widen, reaching an average of 7.3 per cent of GDP in 2010. – (Copyright The Financial Times Limited 2009)