The Commission published its latest interim economic forecast on 13 September 2010. The underlying message of this update of GDP and inflation variables is that the EU economy, while still fragile, is recovering at a faster pace than previously envisaged. The updated projections include France, Germany, Italy, the Netherlands, Poland, Spain and the United Kingdom. The seven countries concerned represent 79% of EU and almost 83% of Euro area GDP.

The economic recovery in the EU has gained ground of late. Gross domestic product (GDP) growth in the second quarter of 2010 was particularly strong, and more balanced towards domestic demand than previously anticipated. While activity is still expected to moderate in the second half of the year, the outlook is for a slightly improved quarterly profile compared to the spring forecast, due to the spill-over of some momentum from the second quarter.

For 2010 as a whole, real GDP growth is now projected at 1.8% in the EU and 1.7% in the Euro area, a sizeable upward revision. The recovery remains fragile however, with uncertainty high and developments across Member States uneven. The Commission's inflation forecast for 2010 is broadly unchanged since the spring, at 1.8% in the EU and 1.4% in the Euro area.

At the disaggregate level, the 2010 interim forecast shows that developments remain uneven across Member States, with the German and Polish economies performing strongest. This unevenness reflects differences in production structures, the scale of adjustment challenges and ongoing rebalancing within the EU and Euro area.

The spill-over of some momentum from the second quarter implies a slight upward revision to the quarterly profile compared to the spring forecast. GDP is now projected to expand by 0.5% in the EU and Euro area in the third quarter, and by 0.4% and 0.3% respectively in the fourth. This brighter outlook is supported, inter alia, by sentiment indicators which point to a continuing expansion of economic activity in the coming months.

Amid continued high uncertainty, risks to the EU growth outlook for 2010 appear broadly balanced. On the upside, the rebalancing of GDP growth towards domestic demand, and the spill-over from the pick-up in activity in Germany to other Member States, may materialise to a greater extent than currently envisaged. On the downside, softer than expected external demand and further tensions in financial markets cannot be ruled out, while fiscal consolidation could weigh more on domestic demand in the countries concerned than anticipated. As for the inflation outlook, risks also appear to be broadly balanced for 2010.