Memo: Preparation of Eurogroup and Economic and Finance Ministers Council, Brussels, 4 and 5 May 2009

Ministers will discuss the economic situation and financial market developments, on the basis of the Spring forecasts presented by Commissioner Almunia on 4 May. The euro area economy is forecast to contract by -4.0% in 2009 and -0.1% in 2010. The downward revision reflects a worsening of the global financial crisis, a sharp contraction in world trade and ongoing housing market corrections in some Member States. However, as the impact of the fiscal and monetary stimuli gain momentum, the fall in GDP is forecast to level off towards the end of this year, with modest growth resuming in the course of 2010. This view is supported by tentative signs that financial markets are stabilising and that the global economy is no longer in free fall.

Indeed, the situation in financial markets is improving somewhat. In particular, money markets are moving gradually towards more stable conditions (although the pre-crisis level is still a long way away). Several financial indicators are showing first tentative signs of increased risk taking on the part of financial market participants. For instance, there has been a rebound in stock and bond markets. However, this recovery is fragile and it remains to be seen whether it will be sustainable, as further stress in the banking sector is likely.

Regarding currency markets, risk aversion has decreased somewhat since the last Eurogroup meeting, though it remains elevated.

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