Home > World News > Eurozone to slip back into recession in 2012, EU officials predict

Eurozone to slip back into recession in 2012, EU officials predict

BRUSSELS — The European Union lowered its growth forecast Thursday for this year and warned that the eurozone would undergo a “mild recession,” casting further gloom on the continent’s economic prospects.

The new figures are likely to intensify concerns that, as European nations enact tough austerity measures to appease the debt markets, they are undermining the economic growth needed to help pull them out of financial distress.

In its forecast, the European Commission said the 17-nation single currency zone will probably shrink by 0.3 percent as a whole in 2012. In November, it had forecast growth of 0.5 percent for the year.

Pushing the projections down were a contraction of 1.3 percent foreseen for Italy and 1 percent in Spain — two of the eurozone’s biggest economies also beset by debt troubles. Of the three small countries that have received international bailouts, Ireland was expected to see slight growth, and Greece and Portugal were projected to suffer steep contractions.

The gross domestic product for all 27 nations of the European Union will be flat, according to the commission forecast.

“The EU is set to experience stagnating GDP this year, and the euro area will undergo a mild recession,” the report said.

Compared with November, “prospects have worsened and risks remain, but there are signs of stabilization especially in the recent period,” said Olli Rehn, the European commissioner for economic and monetary affairs.

“Financial markets remain rather fragile, but there are signs of stabilization,” Rehn said.

“With the exception of Greece, spreads have come down since mid-November,” he said, referring to the premium in borrowing costs paid by the eurozone’s struggling nations.

Rehn also argued that there were no signs of a credit crunch after the intervention in December by the European Central Bank, when it offered cheap, longer-term loans to the banking sector.

“The new liquidity measures by the European Central Bank have contributed to the improvement,” Rehn said.

The November forecast had predicted that Germany, the economic engine of Europe, would record just 0.8 percent growth in 2012. That was lowered to 0.6 percent Thursday.

A closely watched barometer of German business sentiment rose more than expected, raising optimism that the economy is growing again after declining 0.2 percent in the last quarter of 2011.

The Ifo Business Climate Indicator, considered a reliable predictor of future economic performance, rose for the fourth month in a row. Manufacturers, retailers, wholesalers and builders all reported feeling better about their prospects than in January.

“Today’s Ifo index provides further evidence that the economic contraction at the end of last year was only a brief stopover,” said Carsten Brzeski, an economist at ING Bank, in a note to clients. The data mean there is “at least some good news for the eurozone.”

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