Economic Performance and Challenges Ahead

44. In 2010, the EU economy rebounded, following the earlier financial crisis. Real output growth in EU-27 reached 1.8%. After a strong performance in the first half of 2010, real GDP growth for both the EU and the euro area slowed down in the second half of 2010. The deceleration was expected and in line with a soft patch in global growth and trade, which reflected the withdrawal of stimulus measures and the fading away of positive impulses from the inventory cycle. The growth pattern was not uniform, though, with some of the Member States still technically in recession.

45. EU-27 external merchandise trade (excluding intra-EU trade) grew in 2010 around 23%, following earlier decline of 20% in 2009. It reached a value of?2,302 trillion in 2009 which represented 16.8% of the total world trade in goods, keeping the EU firmly in the position of the largest global merchandise trader. The EU continued to run a trade deficit of about? 108 billion in 2009.

46. In 2010, the US remained by far the largest market for the EU merchandise exports, absorbing about 18% of the total. In comparison, China, Switzerland and Russia, which came second, third and fourth respectively, took much smaller shares of between 6-8% each. However, on the import side, China in 2010 strengthened its position as the main source of goods imports into the EU. It accounted for nearly 19% of all goods imported into the EU, while around 11% of imported merchandise came from the US. Russia (just over 10%, of which nearly 80% consisted of fuel and mining products), followed by Switzerland and Norway (both approximately 5.5%) completed the list of top five EU’s import partners in 2010 which together were the source of as much as half of all its goods imports.

47. Developing countries as a group continued to increase their share in the EU imports to well over 50% in 2010, entirely dominating imports in the textiles and fuels (more than three quarters of the total). The EU has continued to import more agricultural goods from developing countries than all other WTO Members combined.

48. Its 26% share of the global trade in commercial services in 2009 illustrates that the EU continues to hold a solid lead position in the global services market. The EU services trade performed relatively well, amounting to?878 billion in 2009, representing only a slightly lower number than before the crisis. Exports continued to perform better than imports resulting in a surplus of?64 billion in 2009.The EU services trade remained more concentrated towards other industrialised economies. The US was the main partner on both the supplying and the receiving side.

49. According to the latest available data, the EU continues to be the world's biggest investor and the principal host. FDI flows, both from and into the EU, were subdued in the recession year of 2009, amounting to?493 billion. Excluding intra-EU flows, the EU accounted for 35% of global FDI outflows and was the recipient of 29% of the global inward FDI in 2009. The main destinations of EU FDI outflows were the US (?79 billion), EFTA countries (?46 billion), Switzerland (?44 billion) followed by Brazil, South Africa and China. On the other hand, EU FDI inflows originated from the US (?97 billion), EFTA countries (?29 billion), Switzerland (?25 billion), Canada (?11 billion), followed by Australia and Latin America.

50. According to the recent Commission economic forecast, the pace of the GDP growth is going to continue, and the EU-27 GDP is projected to increase at the current pace of 1.8% in 2011, as the recovery has been gaining strength and has been more balanced towards domestic demand. On the downside there are signs that the upsurge in energy and commodity prices is feeding into stronger inflationary pressures, which may lead to the tightening of monetary policy in the near future. If that happens, the expected strengthening of domestic demand may be more difficult to materialize.

51. The improved outlook for the external environment will provide a boost to the EU exports. While exports should continue to support the recovery going forward, a rebalancing of growth towards domestic demand is expected for 2011, driven by growth in private investment. A better export outlook should translate into a stronger impetus for equipment investment, which will increasingly contribute to growth. In addition to this impetus from the export-led industrial rebound, equipment investment should benefit from the continued improvement in corporate profits, stronger order inflows and the low level of stocks, as well as from higher capacity utilisation rates, now close to their long-term averages. This view is supported by the strong business confidence and the latest Commission's investment survey, which suggests robust investment plans for 2011. Construction investment is, however, projected to remain relatively subdued this year due to ongoing adjustment in this sector.