Brussels predicts EU economic rebound in 2010 (1st Lead)

Nov 3, 2009, 9:06 GMT

Brussels - The European Union's economy is set to rebound in 2010, recording a growth rate of 0.7 per cent before accelerating to a rate of 1.6 per cent in 2011, the bloc's executive said Tuesday.

Growth in the 16-member group of countries which use the euro should reach 0.7 per cent in 2010 and 1.5 per cent in 2011, the European Commission said.

The rebound is set to follow one of the bloc's worst recessions in decades, with gross domestic product (GDP) estimated to have dropped by 4 per cent in the eurozone and 4.1 per cent in the EU this year.

Europe's economic locomotive, Germany, is set to post a GDP growth rate of 1.2 per cent in 2010 and 1.7 per cent in 2011, compared to a drop of 5 per cent in 2009.

Of the EU's 27 member states, eight - including Spain and Ireland - are only set to come out of recession in 2011.

The commission is expected to use its latest estimates to argue that EU member states should start trimming their soaring budget deficits as of 2011, something which national capitals are reluctant to do.

'Having experienced the deepest, longest and most broad-based recession in its history, the EU economy has reached a turning point,' a commission press release said.

But unemployment is expected to jump next year as businesses continue to struggle with lingering financing problems and the tail end of the recession.

The percentage of people without jobs is set to increase by roughly one-third compared with the figure in 2008, up to 10.7 per cent in the eurozone and 10.3 per cent in the EU as a whole.

Most governments will have little margin to cope with the rising unemployment figures, because the commission estimates that state borrowing has trebled over the last year, from 2.3 per cent of EU gross domestic product (GDP) in 2008 to 6.9 per cent in 2009.

That figure is set to climb still further, to an average EU budget deficit of 7.5 per cent of GDP in 2010 - smashing the EU's rule that governments should limit their deficits to 3 per cent of GDP.

All four of the EU's largest economies are set to breach that rule. Britain's deficit, one of the worst in Europe, is set to reach 12.9 per cent in 2010, while France's should reach 8.2 per cent, Italy's 5.3 per cent and Germany's 5 per cent.