Economic growth in the eurozone was expected to slow down further to 1.5 percent in 2009, according to the latest forecast.
In the 27-nation EU, the Commission said economic growth would reach 2.0 percent in 2008 and 1.8 percent in 2009, down from 2.8 percent last year.
The financial turmoil, which erupted last summer, is proving deeper, wider and longer-lasting, while the downturn in the U.S. looks set to be more pronounced and protracted than previously assumed, the Commission said in its spring forecast.
The Commission's baseline scenario assumed that uncertainty about the size and location of credit losses, which made banks reluctant to lend, would prevail until the end of this year, before gradually petering out during the first half of 2009.
However, the Commission said the EU economy is still in a relatively good position to weather the global headwinds on the back of improved fundamentals, thanks in part to the positive impact of past structural reforms and increased credibility of macroeconomic policies.
But the EU economy will not escape unscathed. Investment growth is weakening due to a cooling-off of overvalued housing markets and the cyclical slowdown. Private consumption growth is also set to slow with employment and real wage growth decelerating this year and consumer confidence in steady decline.
Following on the strong improvement in 2006-2007 momentum, the labor market is now softening. Improvement in public finances was also expected to come to a halt, with the average public deficit set to increase again in 2008.
Looking ahead, the Commission said the major downside risks relate to the still ongoing turmoil in the financial markets which may reinforce the U.S. downturn further.
"The uncertainty is still large as regards the impact of the crisis on the real economy," the Commission said.
"The balance of risks for the growth outlook continues to be tilted to the downside, especially for 2009, while the risks for inflation are somewhat on the upside," it added.
(Xinhua News Agency April 29, 2008)
