Brussels, 29/06/2009 (Agence Europe) - The most recent Euro-zone quarterly report published on Monday 29 June by the European Commission explains that the Euro-zone is still in the midst of an economic crisis but there has been some degree of stabilisation to the financial system over recent weeks. The report also contains an initial evaluation of the efficiency of measures implemented by member states to help their banking sectors. In the editorial summing up the report, the Director General of DG Economy and Financial Affairs at the Commission, Marco Buti, states that “the worst seems to be behind us in terms of GDP contraction and our spring forecast predicts a subdued recovery for 2010”.
The Commission is, however, remaining very cautious and underlines that it is too early to assert that the crisis is over. Economic activity remains depressed, with GDP in the first quarter of 2009 contracting by 2.5% in the Euro-zone compared to first quarter of 2008 (the fall was particularly sharp in Slovakia, with -11.4, Slovenia -6.4% and Germany -3.8%. This was mainly due to the sharp drop in investment. For 2009 as a whole, the Commission is counting on (in line with its economic forecasts) a fall of 4% growth in the Euro-zone and a drop of -0.1% in 2010.
The substantial banking support measures implemented by Member States since autumn 2008 have helped to avert financial meltdown. The measures, mainly in the form of recapitalisation, debt guarantees and asset reliefs etc. have had a positive impact on banks' capital and access to wholesale funding. The functioning of interbank markets has improved significantly. However, the convergence process towards more normal conditions has only been partial and the situation remains fragile. In particular, further significant asset write-downs are still to be expected, as confirmed by a recent Commission study.
Budgetary policy is significantly supporting economic activity in the euro area. At the same time, pressure on public finances is increasing. From its low in 2007, the euro-area average debt ratio is projected to increase by 18 percentage points to reach 84% of GDP in 2010. Italy's debt is expected to increase from 103.5 in 2007 to 116.1% of GDP in 2010; Belgium's from 84 in 2007 to 100.9 next year and that for France, 63.8% to 86%. The Commission believes that public debt will continue to increase over the next few years. Euro-zone public deficit stood at -0.6% of GDP in 2007 and is expected to reach -6.5% in 2010 (-5.3% in 2009 and -1.9% in 2008).
Beyond the crisis, population ageing is expected to weigh substantially on growth during the next decades, becoming apparent already from 2020. The report is available at: http: //ec.europa.eu/economy_finance/thematic_articles/article15481_en.htm. (L.C./trans/rh)