EU economy on the mend

The EU yesterday revised upwards its economic growth forecast for this year following additional signs that the economies of its major member states have been performing better than anticipated.

According to the latest forecasts, known as the Interim Economic Forecasts, covering the biggest economies of the EU, GDP growth in the euro area this year is expected to reach an average of 1.7 per cent, up from the 0.9 per cent forecasted last spring. At the same time, inflation is expected to remain stable at 1.4 per cent.

Although part of the 16-member euro area, yesterday’s report did not go into the performance of the Maltese economy as, due to its smallness, it does not have any effect on the general euro area economy. On the other hand, Malta’s economy is dependent on the performance of its economic and trading partners and better results in the euro area usually reflect better growth prospects in the Maltese economy.

Malta has so far outperformed the results obtained in the euro area as according to the National Statistics Office (NSO) it registered an economic growth of 3.4 and 3.9 per cent respectively during the first two quarters of 2010.

The EU’s interim economic forecasts show that, of the seven biggest EU economies, Germany and Poland are now expected to have an annual GDP growth of 3.4 per cent, followed by 1.7 per cent in the UK and 1.9 per cent in the Netherlands. On the other hand, the economies of Italy and France are expected to be less buoyant while Spain is expected to remain in recession.

Presenting the latest figures in Brussels, EU Economic and Monetary Affairs Commissioner Olli Rehn yesterday said that the European economy was clearly on a path of recovery, more strongly than forecast in the spring, and the rebound of domestic demand boded well for the job market.

“However, uncertainties remain and safeguarding financial stability and continuing fiscal consolidation remain key priorities,” he warned.

According to the Commission’s report, GDP growth in the EU is expected to ease in the second half of 2010, reflecting the softening of the global economy and the fading of the temporary factors that kick-started the recovery.

“Nonetheless, the spill-over of some momentum from the second quarter implies a slight upward revision to the quarterly profile compared to the spring forecast,” the Commission said.

GDP is now projected to expand by 0.5 per cent in the EU and euro area in the third quarter, and by 0.4 and 0.3 per cent respectively in the fourth.

The Commission said that this brighter outlook was supported by sentiment indicators which pointed to a continuing expansion of economic activity in the coming months.