The European Union should be able to exit the current economic recession by the end of this year, according to a new study issued by the European Commission which analyses the economic progress being made in the largest economies of the EU, which together make up 80 per cent of the EU's economy.
According to the Commission's interim economic forecasts, the EU executive is expecting a full recovery by the end of the year with both the EU and the eurozone emerging out of recession and on average registering two consecutive GDP quarters in the black.
However, although this is good news after months of downward trends, Economic and Monetary Affairs Commissioner Joaquin Almunia cautioned that it is still too early to predict that the EU is out of the red zone.
"The situation has improved - mainly due to the unprecedented amounts of money pumped into the economy by central banks and public authorities - but the weak economy will continue to take its toll on jobs and public finance," Mr Almunia told a press conference in Brussels warning that unemployment and deficits are still expected to rise.
"We need to continue implementing the recovery measures announced for this year and 2010 and define a clear, credible and coordinated exit strategy to put public finances progressively back on a sustainable path and to find the necessary resources to increase Europe's growth and jobs potential," he said.
The study focuses on Germany, Spain, France, Italy, the Netherlands, Poland and the UK. According to the forecasts, out of these large economies only Spain and The Netherlands are expected to remain in the red by December.
The EU executive said that economic tailwinds have gained strength during the summer, as the global economy has started to stabilise, partly as a result of strong policy interventions.
"Helped by improved financial conditions, the fall in EU GDP slowed significantly in the second quarter (to -0.2 per cent quarter-on-quarter from -2.4 per cent in the first quarter of 2009). With the inventory cycle at a turning point and confidence improving in almost all sectors and countries, the near-term outlook is favourable," the Commission said.
Based on these trends, growth projections for the second half of this year have been revised slightly upward in the Commission's forecast. However, because of downward revisions to the previous estimates for 2008 and the first quarter of 2009, the rate of the projected fall in GDP in 2009 as a whole still remains unchanged at -4 per cent in both the EU and the eurozone.
The Commission said that the expected improvement in the EU's economy reflects a worldwide trend as the global economy is not considered to be in freefall any longer.
"Emerging Asia appears to be leading the recovery, with growth in China remaining robust, while the contraction in the US has also levelled out. The stimulus package and net exports are expected to allow the US to return to positive growth from the third quarter onwards," the Commission states.
With regards to the EU the study shows that there are reasons to be moderately optimistic about the short term outlook as apart from more favourable financing conditions, both private and public consumption have held up well.
"However, the full impact of the crisis on labour markets and public finances is still to come, and the correction in housing markets continues to hold back construction investment in several countries. The recovery may therefore prove volatile and subpar further down the line," the Commission said.
Malta is also currently in recession. According to Eurostat figures Malta's economy during the first three months of the year contracted by 1.3 per cent over the last quarter of 2008.