Worst financial crisis drives EU economy into recession

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BRUSSELS, Nov 4 (AFP): The worst financial crisis for generations has driven the EU economy into recession and economic growth will come close to a standstill in 2009, the European Commission warned yesterday.
The 15 countries sharing the euro have slumped into the first technical recession, defined by economists as two or more quarters running of economic contraction, since the bloc was formed in 1999, the commission estimated.
Despite the bleak outlook, Eurozone finance ministers ruled out at a meeting in Brussels the possibility of a generalised joint economic recovery plan, opting instead for targeted actions.
In a broad downgrade of its estimates, the commission forecast a short, shallow recession for the EU, predicting the bloc's combined economy would shrink by 0.1 per cent in both the third and fourth quarters of 2008.
For the whole of 2008, the EU's executive arm forecast that the 27-nation economy would grow 1.4 per cent and eke out growth of only 0.2 per cent next year.
In the Eurozone, the economy shrank 0.2 in the second quarter and is set to contract by 0.1 per cent in both the third and fourth quarters, according to the commission's forecasts.
The commission estimated that would bring growth over the whole of 2008 to 1.2 per cent, but said that the Eurozone economy would come close to stalling in 2009 with growth of merely 0.1 per cent.
"We are facing a very serious and problematic year," said German Finance Minister Peer Steinbrueck as he arrived for a meeting with his Eurozone counterparts in Brussels.
Nonetheless, the chairman of Eurozone finance ministers meetings, Luxembourg's Jean-Claude Juncker, said: "We don't think that in the Eurozone we need a generalised (economic) recovery plan," adding that "now is not the time to let deficits slide."
Instead of a sweeping "classic" economic stimulus programme, Juncker told journalists that his counterparts preferred "targetted, temporary and consequential measures" in the face of a severe economic slump.
The car industry, which is seeing sales slump in the face of plunging consumer confidence, has repeatedly been cited in recent weeks as a sector that could get special attention although no specific measures have been proposed.
The commission is in the midst of drafting plans for a coordinated European economic stimulus package, which it aims to present at the end of the month.
In the face of sharply slowing growth, the commission forecast that unemployment would return as a major headache in Europe after a steady decline in recent years.
It predicted that the unemployment rate in the Eurozone would creep up from a record low of 7.2 per cent in March to 8.7 per cent in 2010.
Meanwhile, the economic slowdown would also take its toll on public finances driving deficits in the Eurozone as a percentage of output from 1.3 per cent this year to 1.8 per cent in 2009.
However, some countries would be far over the average with France's deficit hitting the 3.0 per cent limit allowed by EU rules this year and breaching it next year with a deficit of 3.5 per cent.
Some relief would come in the form of lower inflation which the commission said had peaked since commodity prices had fallen in the middle the year.
It forecast that annual inflation in the Eurozone would reach 3.5 per cent in 2008 before easing back to 2.2 per cent in 2009 and 2.1 per cent in 2010.
If confirmed, that would bring the inflation rate much closer to the European Central Bank's (ECB) comfort zone of close to but less than 2.0 per cent, giving more scope for a series of rate cuts in the face of weak growth.