The latest interim forecast of the European Commission, issued today, points to a stagnation of the EU economy and to a mild recession in the euro area. However, modest growth is predicted to return in the second half of the year.

Against the backdrop of a waning growth momentum and continued low confidence, real GDP is expected to stagnate in the EU and to shrink by 0.3% in the euro area in 2012.

The Maltese economy, however, is projected to grow by 1%, one of the best performers. Estonia and Slovakia and projected to be the best performers in the eurozone with growth of 1.2%.

Divergences between Member States remain pronounced

At the level of the individual Member States, growth divergences remain pronounced. In 2012, GDP growth is forecast to be positive in seventeen countries (Bulgaria, Denmark, Germany, Estonia, Ireland, France, Latvia, Lithuania, Luxembourg, Malta, Austria, Poland, Romania, Slovakia, Finland, Sweden and the United Kingdom) stagnant in one (Czech Republic) and negative in nine countries (Belgium, Greece, Spain, Italy, Cyprus, Hungary, the Netherlands, Portugal and Slovenia). Growth will be highest in Poland (2.5%), Lithuania (2.3%) and Latvia (2.1%) - all of which are not in the eurozone -  and lowest in Greece (-4.4%) and in Portugal (-3.3%).

Inflation easing only gradually

On the back of persistently high energy prices, inflation has remained higher than forecast in autumn and is expected to decelerate slowly over the forecast horizon. For 2012 as a whole, the HICP inflation rate is now projected at 2.3% in the EU and 2.1% in the euro area. In 2011, it is estimated to have amounted to 3.1% in the EU and 2.7% in the euro area.

Domestic and global demand prospects

The economic outlook is conditioned by a less supportive global economy, with the ongoing weakening of global demand weighing on net European exports. EU business and consumer confidence are still at low levels, although a recent slight improvement has been noted as the financial sector has shown signs of stabilisation. Also, in the light of subdued demand, credit conditions are not expected to constrain investment and consumption over the forecast horizon. Overall, a gradual return of confidence and a recovery of investment and consumption are expected in the second half of 2012.

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