The eurozone has entered a “mild recession” and EU economic growth is likely to be stagnant throughout 2012, the European Commission’s latest interim forecast has stated.

Malta has not been spared any of the economic pain, with the Commission revising the country’s growth forecast for 2012 down to one per cent from its original 1.3 per cent forecast last November.

Last November, the government had forecast growth of 2.3 per cent for 2012. Reaching that target is likely to prove tricky, with the International Monetary Fund, Commission and a number of rating agencies all forecasting lower Maltese growth rates for 2012. The Commission’s latest forecast report predicts a “relatively subdued” 2012 for Malta, coming on the back of an economy which “gradually lost steam” over the course of last year.

A deterioration in market conditions, coupled with wage growth below inflation figures, is likely to see household disposable income “squeezed”, while the Commission expects local business investment to be dampened by economic uncertainty.

A National Statistics Office statement compounded the economic uncertainty, revealing that in January the government deficit had grown by a further €39.2 million.

Much of the gap was down to a significant increase in capital expenditure, with productive investment almost quadrupling when compared to January 2011.

Revenues from income tax and social security were both up, although VAT income was slashed by approximately 10 per cent from its January 2011 level.

The Commission’s downbeat prognosis was reflected in its forecasts for other member states. The economies of six eurozone states – Belgium, Greece, Spain, Italy, Cyprus, Netherlands and Portugal – are expected to contract during the course of the year.

Last November, negative growth had only been predicted for Greece and Portugal.