Eurozone economy to shrink in 2012

The eurozone is heading into its second recession in just three years, while the wider European Union will stagnate, the EU’s executive said on Thursday, warning that the currency area has yet to break its vicious cycle of debt.

The Commission forecast that economic output in the 17 nations sharing the euro will contract 0.3 per cent this year, reversing an earlier forecast of 0.5 per cent growth in 2012. The wider European Union will not manage any growth this year, the Commission said.

However, the EU’s top economics official said the slowdown will be mild.

“Recent developments in survey data suggest that the expected slowdown will be rather mild and temporary,” EU Economic and Monetary Affairs Commissioner Olli Rehn told a news briefing following the release of the European Commission’s interim report on the EU economy.

Meanwhile German business confidence has risen to its highest level in seven months, offering fresh evidence that Europe’s largest economy will dodge a recession even as euro zone peers tighten their belts to fight off the sovereign debt crisis.

The Munich-based Ifo think tank’s business climate index, based on a monthly survey of some 7,000 companies, rose to 109.6 in February, beating expectations for 108.8. That was its highest since July 2011 and the fourth increase in a row.