EU

Recession forecast for Europe

Article published on the 2008-11-03 Latest update 2008-11-03 16:16 TU

European Economic and Monetary Affairs Commissioner Joaquin Almunia
(Photo: Reuters)

The European Commission says that the world financial crisis has pushed Europe into recession, with the economy contracting in three quarters this year. But the recession is expected to be short and shallow, except for in the Baltic states which have seen spectacular growth since joining the European Union.

The commission predicts that the 27-nation bloc will have shrunk 0.1 per cent in the third and fourth quarters of 2008, while estimating that the economies of the 15 nations that use the euro shrank 0.2 per cent in the second quarter.

It is the first time that the eurozone has experienced recession - two consecutive quarters of negative growth - since the single currency was introduced in 1999.

Only two Baltic states are expected to suffer extended recessions.

Latvia's 2007 growth rate of 10.3 per cent is expected to contract 0.8 per cent this year and 2.7 per cent in 2009. Estonia will go from 6.3 per cent in 2007 to 1.3 per cent in 2008 and 1.2 per cent in 2009.

The third Baltic state, Lithuania, is expected to continue growth this year, at 3.8 per cent, but to be stagnant in 2009.

The Commission predicts that unemployment will rise from a record low of 7.2 per cent in March to 8.7 per cent in 2010.

John Purvis, the vice-chairman of the European Parliament's economic affairs committee, believes that the euro and European solidarity help protect the community from the worst effects of the crisis.

"I think it will probably be able to resist because of the spread of interests all over the community and the solidarity has to extend across borders," he told RFI. The EU's response must be "not just each one for itself but all together", he added.

French carmakers Monday reported a slump in sales, with 7.3 per cent fewer new cars sold compared to October 2007.