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By Jan Strupczewski
BRUSSELS, Sept 7 (Reuters) - The economic recession in the European Union might be ending but the road to recovery will be bumpy and the conditions for sustained growth are not yet in place, European businesses said on Monday.
"Positive second-quarter GDP growth in some EU member states and improvements in national and global confidence indicators suggest that the recession might be drawing to a close," BusinessEurope said in a statement.
"However, it is too early to give the 'all clear'," said the organisation, which represents some 20 million firms in Europe.
BusinessEurope forecast the economy of the 16-country euro currency zone would contract 4.1 percent this year and grow by 0.5 percent in 2010.
For the whole European Union of 27 member states, BusinessEurope forecast a contraction of 3.9 percent this year and growth of 0.7 percent in 2010.
"At present, BusinessEurope expects the economic environment to remain extremely volatile, allowing for only subdued positive quarter-on-quarter growth for the second half of 2009," the statement said.
The group saw euro zone inflation this year at 0.3 percent, rising to 1.3 percent in 2010 -- still well under the European Central Bank's target of below, but close to, 2 percent.
Unemployment in the euro zone would rise to 9.8 percent this year and 11.3 percent in 2010, BusinessEurope said.
The business lobby urged governments to restore confidence in public finances by devising plans to withdraw stimulus measures that have ratcheted up budget deficits.
"The current situation is absolutely unsustainable," BusinessEurope President Juergen Thumann told a news conference, forecasting public debt in the EU would reach 80 percent of gross domestic product next year.
It was too early now to withdraw government help to the economy but some instruments could start to be pulled back next year if clear signs emerged that activity was recovering and not heading for a double dip, Thumann said.
He said such a withdrawal should take the form of structural reforms rather than tax increases, which could weaken recovery.
The best options for European companies included a reduction of the public sector, reforms of the labour and product markets, tax simplification, health care reforms and raising the retirement age, he said.
"Merely raising taxes will burn our chances for sustained recovery," Thumann said. "We need structural reform rather than raising non-wage labour costs."
BusinessEurope's chief economist, Marc Stocker, said the organisation supported the monetary policy of the European Central Bank and believed interest rates could stay low for a long time.
The ECB left its key refinancing rate at 1 percent last week, and economists do not expect the bank to start increasing borrowing costs until mid-2010.
Thumann said he opposed caps on bank bonuses -- an idea floated by France to discourage traders' excessive risk-taking, which many believe led to the global credit crunch at the root of the recession.
"It is not going to work," Thumann said, adding that bank supervisory boards should set bonuses. (Editing by Dale Hudson)