European Commission Forecasts a Sharper-than-expected Slowdown

Economic growth is expected to post 1.4% this year in the European Union (1.3% in the euro area) – around 0.5% less than forecast in April. The main downside risks identified in the spring forecast have materialised, with the financial turmoil deepening, commodity prices soaring and the shocks to several housing markets spreading more widely. Inflation is expected to average 3.8% in the EU and 3.6% in the euro area this year following the continued strong rise in commodity prices. This represents an upward revision, although inflation could be at a turning point as the impact of past increases in energy and food prices gradually fades in the coming months. For 2008, the Commission’s Economic and Financial Affairs Directorate General now forecasts growth at 1.4% in the EU and 1.3% in the euro area, which represents a 0.6% and 0.4% downward revision, respectively, compared to the spring forecast. This is calculated on the basis of updated projections for France, Germany, Italy, the Netherlands, Poland, Spain and the UK, which together account for about 80% of the EU’s GDP.

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