The European Commission has slashed its economic forecasts, saying Europe’s economy will not start recovering until the second half of next year.
Despite what it called some ‘positive signals’ in recent days, the commission said the euro zone economy would shrink by 4% this year and by 0.1% next year.
For Ireland, it forecast a 9% contraction in economic output this year, and a 2.6% fall next year. It added that the unemployment rate could reach 16% next year, saying the country was facing a ‘protracted and deep recession’.
The Commission said that, if there were no changes in policy, the government deficit could widen to 15.5% of GDP next year, while the country’s debt could triple from 25% of GDP in 2007 to almost 80% by 2010. It says these forecasts do not include any impact from the setting up of the National Asset Management Agency.
But the Commission says a broad decline in wages across the economy should start to reverse ‘the deterioration in Ireland’s competitive position since the beginning of the decade’.
'Some positive signals' - Almunia
‘The European economy is in the midst of its deepest and most widespread recession in the post-war era,’ Economic and Monetary Affairs Commissioner Joaquin Almunia said in a statement.
‘The outlook is still gloomy, but for the first time since mid-2007 some positive signals have appeared in the last week,’ he told reporters later, noting healthier financial markets and an improvement in business confidence indicators.
The Commission growth forecasts are a sharp downward revision of January 19 projections of a 1.9% contraction this year and 0.4% growth in 2010.
The Commission also forecast soaring unemployment that would reach 11.5% of the workforce in 2010 and inflation well below the European Central Bank's target this year and next.
The ECB meets on Thursday, when it is expected to cut its main interest rate by another quarter-point.
