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EU’s economic growth expected to drop in 2008 and 2009

The European Union’s economic growth is expected to decline from 2.9 per cent in 2007 to 2.4 per cent in both 2008 and 2009, according to the European Commission’s autumn economic forecast.

The Commission says this is a result of turbulence in the financial markets, which has caused tighter financing conditions and increased uncertainty.

The EU is predicted to create 8 million new jobs over the period 2007-2009, on top of the 3.5 million already created in 2006. The Commission says this will help reduce EU unemployment to 6.6 per cent in 2009.

The forecast also states that the budget deficit for 2007 in both the EU and the euro area will fall to its lowest level in many years, averaging 1.1 per cent of GDP in the EU and 0.8 per cent in the euro area. Inflation is predicted to increase as a result of higher commodity prices, but the Commission says it is expected to fall back to around 2 per cent by mid-2008 in the euro area.

Economic and Monetary Affairs Commissioner Joaquín Almunia says this summer’s turbulence in the financial markets, the US slowdown and the ever-rising oil prices have had an adverse effect on the EU’s economy.

He says: “As a result, economic growth is becoming more moderate and the downside risks have clearly increased. But thanks to strong world growth and solid economic fundamentals, the negative impact should be limited. On the prices front, inflation should remain moderate, but the risks are on the upside.”

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