Eurozone finance ministers are expected to voice fears on Monday that a recovery from the economic crisis could be slow as the region's ability to generate new wealth will shrink, diplomats said. At a monthly meeting, the ministers are also likely to conclude that the current fall in consumer prices should not cause too much concern, and they will debate further when they should start cutting their budget deficits swollen by fiscal stimulus programmes.
"When discussing the economic situation, the ministers will focus on the impact of the crisis on potential growth," one diplomat said, referring to a term describing the highest economic expansion sustainable over the long term.
European Union and eurozone officials believe that potential growth in the 16-nation region, which was already low before the crisis at 2 percent, will shrink while high unemployment would persist for long. "You can see that Europe will not have the growth potential it had before the crisis," EU Monetary Affairs Commissioner Joquin Almunia said this week.
But the ministers are likely to state that the worst is over for the eurozone, although a modest recovery would start only in 2010, with its scale also depending on whether the financial system could be healed. "The fact that we are moving away from the bottom now can mean either that the economy is going upwards, or that maybe it is a bounce and after that we could go down again and stay down for a while," said a source involved in preparation of the Eurogroup meeting. "What happens in the banking system will be crucial - if credit channels are unblocked, then there could be gradual improvement. There, general mood is cautiously positive," the source added.
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