The European Commission on Monday (29 November) raised its growth forecast for the EU, despite the debt crisis affecting the eurozone.

Gross domestic product (GDP) in the EU is predicted to increase by 1.8% in 2010, up from the 0.9% forecast in May, and then to rise further – by 1.7% in 2011 and by 2.0% in 2012. Growth in the eurozone is expected to lag slightly behind this rhythm, at 1.7% in 2010, 1.5% in 2011 and 1.8% in 2012.

This latest edition of the Commission’s twice-yearly economic report balanced signals of accelerating recovery with warnings of uneven performance across the member states – with some peripheral countries, in particular, still lagging.

Olli Rehn, the European commissioner for economic and monetary affairs, said the economic recovery had “taken hold”, and that he was “encouraged by the prospect that employment is finally set to improve next year”. He added that public deficits are starting to decline as a result of consolidation measures and the resumption of growth.

The budget deficit for the 27 EU member states is forecast to fall from 6.8% of GDP this year to 5.1% next year and to 4.2% in 2012. The members of the eurozone are expected to do better, with 6.3% in 2010, 4.6% in 2011 and 3.9% in 2012.

German ‘growth’ motor

Rehn identified Germany as the source of the momentum for the upturn, with growth of 3.7% predicted for 2010, slowing to 2.2% in 2011 and 2.0% in 2012. The forecast for the French economy is a rise of 1.6% in 2011 and 1.8% in 2012, following 1.6% in 2010. The fastest growth will be seen in Estonia, which will adopt the euro in January. Its economy is predicted to grow by 4.4% next year and 3.5% in 2012, compared to a forecast 2.4% in 2010.

All countries in the EU, apart from Greece and Portugal, are expected to be out of recession by the beginning of next year, according to the forecast. GDP is expected to contract in Greece, Latvia and Romania, and, to a smaller degree, in Bulgaria and Ireland. Portugal is expected to fall back into recession, contracting 1% in 2011, before returning to growth of 0.8% in 2012. Greece’s economy will slowly improve, the report said. It is predicted to shrink by 3% in 2011 before growth of 1.1% for the following year.