Recession looms as EC slashes forecasts
THE EUROZONE economy will contract by 0.3 per cent this year, according to updated forecasts published yesterday by the European Commission (EC).
The forecast for a recession represents a sharp turnaround from the 0.5 per cent growth predicted just four months ago, as economic data since November has been much weaker than expected.
The Greek economy remains the weakest with GDP set to contract by 4.4 per cent – well below the 2.8 per cent forecast in November, and below the 4.3 per cent drop European leaders assumed when putting together Greece’s bailout plan earlier this week.
Germany is set to grow by 0.6 per cent and France by 0.4 per cent, while the other major economies are set to contract – Italy by 1.3 per cent and Spain by one per cent.
Under these forecasts the EC expects unemployment to keep rising, particularly in Greece, Spain and Portugal which account for 95 per cent of the rise in joblessness since late 2010.
However, even these revised forecasts may prove too optimistic.
“If the sovereign debt crisis were to rebound massively, severe credit rationing and a collapse of domestic demand could ensue,” the report said.
“Such an outcome would most likely trigger a deep and prolonged recession, not sparing even those countries which have shown more resilience.”
Any recovery in the second half of this year will be “gradual and feeble,” the EC warned.