Economy in the Eurozone set to shrink by 0.3pc

THE EUROZONE economy will shrink by 0.3 per cent next year, a leading group of economists has predicted.

Economic activity across the 17-state single currency area will thereafter stage only a “modest recovery” in 2013, the Economist Intelligence Unit (EIU) said yesterday.

“The latest plan to resolve the crisis is expected to comprise coordinated bank recapitalisation, an expansion of the lending capacity of the European Financial Stability Facility through guarantees, and an increased write-down of Greek debt,” the report said. “None of these steps is without problems.”

Despite resilience across the pond, the EIU expects troubles in Europe and US fiscal tightening to constrain American growth next year, forecasting expansion of only 1.3 per cent.

Weak demand in the West will also impact emerging markets, the group said, forecasting a slowdown in Chinese growth to 8.2 per cent in 2012, from 9.1 per cent this year.

“A moderation of inflation is likely to allow the Chinese authorities to start easing monetary policy early in 2012,” the report said.

Sluggish growth of 0.8 per cent is predicted for the UK in 2013, the EIU told City A.M.