Improvement in European economy, govt debt remains concern: EC

LONDON: The economic prospects in Europe are improving even as mounting government debt and high unemployment raise concerns, according to the European Commission, which has upped the region's growth forecast.

The latest projections come at a time when the region is grappling with the Greece debt crisis, sparking concerns that it could spill over to other European nations, including Portugal and Spain.

The European Commission (EC), the executive arm of the 27-nation European Union (EU), today said the region's economy is improving.

It has upgraded the 2010 growth forecast of the EU and 16-nation euro zone to one per cent and 0.9 per cent, respectively. In February, the EC had estimated these regions would expand at about 0.7 per cent.

"The improved outlook for economic growth this year is good news for Europe. We must now ensure that growth will not be derailed by risks related to financial stability.

"Sustainable growth calls for determined fiscal consolidation efforts and reforms that enhance productivity and employment," EU Commissioner for Economic and Monetary Affairs Olli Rehn said in a statement.

However, the sovereign debt crisis in some member nations and concerns about the soundness of financial markets pose uncertainty to the economic recovery prospects.

Pointing out that recession had a major impact on public finances, the commission said that government deficit has tripled since 2008.

"It is projected to peak this year in the EU (reaching 7.25 per cent of GDP) and to improve slightly in 2011 (to around 6.50 per cent).

"... increasing public debt is the longest lasting legacy of the crisis; it will impact the economy long beyond the current forecast horizon," the statement noted.

Referring to the intense debt turmoil faced by the Greek government, the commission said successful completion of financial support to Greece can be expected to increase investor and consumer confidence.

Despite the improving economic situation in major countries like Germany and France, the labour market is strained and is expected to remain weak for some more time. The jobless rate in Europe is close to ten per cent.

The commission noted that GDP growth is expected to regain ground more firmly by the end of 2010.

"As the economy is emerging from a recession accompanied by a financial crisis, the recovery crucially relies on the soundness of financial markets, which has yet to be solidly re-established. Also a renewed widening of global imbalances could impact European growth prospects," it added.