EU Sees Gradual Economic Recovery In 2010, 2011

BRUSSELS (Dow Jones)--The European Union economy will recovery gradually over the next two years, while unemployment and government budget deficits continue to climb, the European Commission said Tuesday.

The commission, the EU's executive arm, expects the bloc's economy to contract 4.1% this year before expanding 0.7% next year and 1.6% in 2011.

For the 16 countries that use the euro, the commission expects a 4% contraction this year, followed by 0.7% growth next year and a 1.5% expansion in 2011.

This outlook is "highly uncertain," the commission said in its quarterly forecasts, noting that "significant fiscal and monetary policy measures" are supporting the region's current steps toward recovery.

EU countries last December agreed to spend about EUR200 billion to support their economies. Combined with a sudden fall in tax revenue, this spending has caused a sharp deterioration in EU public finances.

The commission expects the total EU government deficit to be 7.5% of gross domestic product next year, roughly triple the level recorded in 2008. Next year, among the bloc's 27 member countries, only Bulgaria is expected to have a deficit below 3% of GDP, the EU-mandated limit.

"A protracted period of fiscal consolidation will have to follow at some stage to put public debt back on a sustainable footing," the commission said in its report.

EU finance ministers already have agreed that fiscal stimulus measures need to be ended by 2011, at the latest. The commission expects states support for the economic recovery to "fade away" in the course of next year.

Even though the EU and euro-zone economies are expected to recover over this period, unemployment will continue to rise, according to the commission. It expects unemployment to reach 10.9% in the euro zone in 2011, while stabilizing around 10.3% in the E.U. as a whole.

-By Adam Cohen, Dow Jones Newswires; +322 741 1486; adam.cohen@dowjones.com

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November 03, 2009 04:53 ET (09:53 GMT)


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