Following one of the deepest economic recessions experienced in recent years, triggered by the financial crisis, the EU's economy seems to be on the road to recovery.
According to the European Commission's autumn economic forecasts, the EU's economy is expected to start growing again in the second half of this year, although for 2009 as a whole, GDP is still set to fall by some four per cent.
Malta is also recuperating slowly and is expected to register a GDP growth of 0.7 per cent next year following a -2.2 per cent contraction expected for 2009.
In its forecasts for the EU as a whole, the EU executive said that a gradual recovery is expected with GDP forecast to grow by 0.7 per cent in 2010 and around 1.5 per cent in 2011. The near-term rebound in activity follows from improvements in the external environment and financial conditions, as well as from the significant fiscal and monetary policy measures put in place.
Further out, a number of factors are set to restrain private demand and thus, the strength of the recovery. In particular, labour-market conditions will remain weak, with the unemployment rate projected to reach 10.2 per cent in the EU. The public deficit is also expected to rise to 7.5 per cent of GDP in 2010, before falling back slightly in 2011 as the economy picks up and temporary measures gradually come to an end.
According to the Commission, the improved near-term outlook in the EU and abroad is partly the result of temporary factors.
"As the impact of these fade in the course of 2010, global activity is likely to go through a soft patch. EU export growth is therefore expected to firm only gradually over the forecast horizon. Domestic demand also faces a number of constraints going forward. Reflecting low capacity utilisation, relatively weak demand prospects, subdued profitability gains and still moderating credit growth, investment is not projected to recover until 2011," the Commission said.
However, despite positive signs of growth, Europe's labour market and public finances will continue to be under pressure.
Brussels said that while the EU labour market has been more resilient to the recession than expected (largely on account of short-term policy measures, past reforms and labour hoarding in some member states including Malta), an increase in labour shedding is expected in the coming quarters. A contraction in employment of around 2.2 per cent is foreseen this year, with a further decline of about 1.2 per cent expected in 2010. A gradual stabilisation in employment is likely towards the end of 2010 and into 2011 as the recovery takes hold.
Public finances have also been hit hard with deficits mushrooming all over the EU.
The government deficit is projected to triple this year in the EU (reaching close to seven per cent of GDP, up from 2.2 per cent in 2008) and to rise further in 2010 to around 7.5 per cent. This deterioration follows in part from the working of automatic stabilisers and the discretionary measures taken to support the economy, but also reflects a stronger than usual fall in revenue in response to the downturn.
A slight easing in the deficit, to just below seven per cent of GDP, is expected in 2011 as activity picks up and temporary measures come to an end. However, the debt ratio is set to remain on an increasing path.
Commenting on the results of this forecast, Economic and Monetary Affairs Commissioner Joaquin Almunia said that the expected turnaround owes much to the ambitious measures taken by governments, central banks and the EU that have not only prevented a systemic meltdown but have kick-started the recovery.
"However, the road ahead is a challenging one. To maintain momentum and support the sustainability of the recovery, it is essential that we fully implement all announced measures and complete the repair of the banking sector. We must also begin to look more towards the medium-term, and consider how best to address the adverse effects that the crisis has had on labour markets, public finances and potential growth," he said.