European Commission: Economic Growth Will Slow to ‘Virtual Standstill’ in Second Half

The European Commission is predicting that economic growth will come to a “virtual standstill” in the euro zone during the second half of 2011. It has lowered its estimate for third quarter growth to just 0.2%, while its forecast for the last three months of the year is down from 0.4% to 0.1%.

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While the commission says weakening demand outside Europe and financial market problems are responsible for the slowdown, it remained confident that the euro zone would not fall into another recession. “Recoveries from financial crises are often slow and bumpy. Moreover, the EU economy is affected by a more difficult external environment, while domestic demand remains subdued,” said EU Economic Affairs Commissioner Olli Rehn. “The sovereign debt crisis has worsened, and the financial market turmoil is set to dampen the real economy.”

The report, released today, predicts that member states cutting back on spending in order to reduce their debt burdens will also hit growth. The commission also predicts that inflation will fall back faster than previously expected, as commodity price rises have slowed more than expected.