There is more trouble ahead for the EU economy according to new economic forecasts issued by the European Commission yesterday, based on the economic performance of its biggest member states.
According to its interim economic forecasts, the European Commission said the economy is expected to grow by 1.3 per cent in the euro area this year (1.4 per cent in EU 27) - about 0.5 per cent lower than the already dull forecast of last April.
On the other hand, inflation will continue to rise to an expected average of 3.6 per cent by the end of this year (3.8 in the EU 27) following the continued strong rise in commodity prices.
However, according to the EU forecast, the gradual fading of the impact of past increases in energy and food prices in the coming months suggests that inflation could be at a turning point. The report states that future developments in commodity markets and the capacity to contain second-round effects will be key for the inflation outlook.
According to the Commission, the main reasons for this bleak economic period are the continuation of the turmoil in the financial markets, the near doubling of energy prices and the correction in some housing markets which have had an impact on the economy. The Commission said that the recent fall in oil and other commodity prices and the easing up in the euro exchange rate have provided some relief.
Addressing the press in Brussels, European Economic and Monetary Affairs Commissioner Joaquin Almunia said this uncertain environment should be addressed by more reforms.
"We must speed up the implementation of the Lisbon Agenda to help restore confidence in the financial markets and preserve the improvements in public finances so as not to increase the burden for future generations which will already face the challenge of an ageing population," he said.
The EU's interim economic forecast, published twice a year, is based on the economic performance of the seven biggest economies in the EU, namely, Germany, Spain, France, Italy, the Netherlands, Poland and the UK.
Malta's economy is not calculated for forecasting purposes. Contrary to the economic scenario painted by the EU, Malta's economy is registering sound growth, posting a 3.2 per cent GDP growth (in real terms) in the second quarter of this year. On the other hand, Malta's inflation last July stood at 5.6 per cent, 1.6 per cent more than the eurozone's average.