It has been forecast by the European Commission that the eurozone’s economic growth will practically stop in the last half of this year. It has reduced its prediction for the second quarter of 2011 by 50% bringing it down to just 0.2% and the expectations for economic growth in the last quarter have decreased to 0.1% down from 0.4%. The commission has held the problems in the financial markets over the past few months and deteriorating demand from the rest of the world as responsible for the lowered expectations.
However, it has expressed confidence that Europe will not sink back into a recession.
Olli Rehn, the EU Economic Affairs Commissioner spoke in a news conference about the report explaining that financial recovery is more often than not turbulent and sluggish. He claimed that the economic recovery of the eurozone has been made even harder by circumstances surrounding it such as lowered consumer demand.
The report foreseen that the spending cuts being made by countries in the eurozone such as Greece, in order to lower their deficits would have a negative effect on European growth.
Greece is currently taking all the measures to cut back on its spending it promised to, in exchange for both of the bailouts it received. Many eurozone leaders expressed their support for Greece yesterday, stating that it is a vital member of the eurozone, which has subsequently given the markets a boost today.
Greece needs to convince inspectors from the European Central Bank, IMF and EU that it is meeting the spending cut targets given to it, if it is to receive the next loan from its first bailout later this month. However, there are fears that the inspectors will conclude that Greece has failed to do so which could be disastrous. If Greece is not given this loan, by the middle of next month it will fall behind on its debt payments.
Despite cutting its economic forecast for the eurozone, the Commission has claimed that inflation rates would reduce more quickly than was expected as the rise in commodity prices has slowed more than it was initially predicted. Figures from Eurostat coincide with this claim as they showed that the inflation rate has remained the same as it was in July. The commission believes that the figure will stay unchanged for the duration of this year.
Want to learn more?
Subscribe to our newsletter to get accounting tips like this right to your inbox
About The Author
MAAT and ICPA accountant, with a passion for making accountancy and bookkeeping accessible. Other interests include cloud-based software development for web and mobile access, keeping fit, reading, and entrepreneurship.