The eurozone faces a deeper recession than thought, with a 0.3 per cent contraction in GDP now seen for 2012 by the EU compared to 0.5 per cent growth in its last November forecast.
“The unexpected stalling of the recovery in late 2011 is set to extend into the first two quarters of 2012,” the European Commission said yesterday but stressed it saw a “mild recession with signs of stabilisation”.
Announcing the bi-annual forecast, European Economy Commissioner Olli Rehn put the figures into context by comparing them to overall global growth which he expected to be 4.3 per cent this year.
Unusually, the EU executive fed in data from all 27 EU states – not just the seven biggest – in a bid to make its forecasts more robust.
The European Commission said “modest growth is predicted to return in the second half of the year”, with inflation revised “slightly upwards” to 2.1 per cent across the 17-state euro currency area, mainly due to energy costs and “increases in indirect taxes”.
A fifth year of recession in Greece is now expected in Brussels to result in a 4.4 per cent contraction of gross domestic product in 2012.
As the Greek government pursues a €107 billion write-down of private debt and a fresh €130 billion-plus bailout from international backers, the figure was however better than the 5.5 per cent slide forecast in December by Prime Minister Lucas Papademos.
However, Italy, which carries the eurozone’s biggest debt burden of about €1.3 trillion, faces a recession that will cut output by 1.3 per cent in 2012.
The last official forecast from the government in Rome was for a 0.4 per cent fall, although the Bank of Italy last month tipped between 1.2 per cent and 1.5 per cent, while the IMF predicted an even worse result, a 2.2 per cent drop.
“Although growth has stalled, we are seeing signs of stabilisation in the European economy,” Mr Rehn said highlighting “easing” stress in financial markets.
The Commission cited a “less supportive” global economy “weighing on net exports” as well as low business and consumer confidence in Europe, although the forecast maintained that “a credit crunch has been avoided”.