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According to a press release from the European Union, an economic recovery has begun to make some headway. While there was an expected decrease in growth in the EU 27 and euro zone areas in the second half of 2010 following a withdrawal of stimulus measures, there was growth in the first half of last year.  Favourable money market activity and supportive financing options should combine to facilitate this positive trend.

Uncertainties

While important uncertainties remain, such as the potential for tensions within the financial market, predictions for 2011 are positive due to improved prospects for the global economy (Global GDP is projected to grow by some 4.75 percent in 2011) and strong EU business sentiment. While the outlook is deemed favourable, EU Economic and Monetary Affairs Commissioner, Olli Rehn outlined the need for an agreement on an ambitious agenda of fiscal consolidation and structural reforms, as outlined in Commission’s Annual Growth Survey.

Germany as leader

Figures show real GDP growth is expected to reach 1.8 percent and 1.6 percent in the EU and euro area respectively representing an upward revision of 0.1 percentage point in both regions compared to the autumn forecast of November 29 2010. Inflation currently stands at 2.5 percent and 2.2 percent in the EU and euro area respectively. It is expected that Germany and France will lead the European recovery with a 2.4 percent increase in GDP growth expected in Germany and a 1.7 percent increase in France. Projections for Poland and the UK predict a 4.1 percent increase in GDP growth for Poland and a 2 percent increase in the UK while Spain should increase by 0.8 percent.  This shows that the recovery remains uneven as many Member States continue to experience a difficult phase of adjustment.

Increased domestic demand

Factors that will also facilitate the positive predictions for the overall financial market situation in the EU include an increase in private consumption, the stabilisation of the labour market, the recovery of lending to households and the continued decline of the household saving rate. While exports will continue to assist the recovery in Europe, an overall rebalancing of growth towards domestic demand is anticipated for the upcoming year.

Inflation

Inflation, due to a surge in energy and commodity prices, is set to stand at 2.5 percent in the EU and 2.2 percent in the euro area in 2011. While core inflation is expected to rise slowly due to a rise in activity and potentially due to higher imported inflation from emerging-market economies, inflation would potentially decrease to 2 percent in both regions as other underlying inflationary pressures would be kept at bay due to the remaining economic slack, subdued wage growth and overall well-anchored inflation.