EUROPEAN ECONOMY. Supplement A Economic Trends N°10/11-October/November 2001


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ISSN 0379-2056 EUROPEAN ECONOMY EUROPEAN COMMISSION DIRECTORATE-GENERAL FOR ECONOMIC AND FINANCIAL AFFAIRS In this number: Supplement A Autumn 2001 Forecasts Economic Trends for2001-20031 N°10/ll-October/November 2001 finance Highlights • The world economy is experiencing a severe and synchronised slowdown but is expected to recover in the course of next year as confidence returns, excess capacities unwind and international trade picks up. • Euro area GDP growth is expected to reach only IV2 % on average in 2001. It is unlikely to be higher next year, even if the pick-up starts in the first half of 2002 and quickly gains momentum thereafter. Tax cuts, lower inflation and sound fundamentals should support the recovery. Employment creation is likely to be much lower and the number of jobless is expected to rise by about half a million in 2002, the first increase since 1997. • After an increase this year, the inflation rate in the euro area is expected to fall below 2 % in early 2002 and not much inflationary pressure is expected during the period up to the end of 2003 covered by the forecast • For the first time since 1993 the general government balance deteriorates in 2001 (even if an adjustment is made for the UMTS licence receipts) and again in 2002. The economic downturn and, to a lesser extent, discretionary tax cuts implemented in early 2001 are the main reasons for the worsening of public finances.


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