In a quarterly report on the euro area, European Commission shows that the coordinated policy response in the region returned positive results, but the government should adopt a more prudent approach in spending once the recovery takes hold.
“Some very early signs of improvement have been visible in the past few weeks. Thus, the worst seems to be behind us in terms of GDP contraction and our spring forecast predicts a subdued recovery for 2010”, EC said.
In view of a full-fledged financial crisis, the euro-area GDP suffered a record 2.5% contraction in first quarter compared to the previous quarter.
Analysts expect the gross domestic product of the euro area to contract further but at a slower pace, although the number of unemployed and inventories correction could push the projected recovery even further into the future, Commission announced.
The unemployment rate in the region climbed to ten-year high of 9.2%.
The billions of dollars rescue packages put in place by the affected states to stabilize the financial system and to restore economic growth seemed to pay off, but many banks remain vulnerable to risks.
“Regulators should draw a credible strategy for the fiscal policy, in order to pave the way to a gradual pull-out of fiscal incentive schemes, once the recover rakes hold”, reads the report.
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