Financial News

  • 23 February 2013, 17:24

Eurozone Economy Will Shrink Again, Warns EU

The EU has warned that the eurozone's economy will remain in recession for longer than expected.

In its winter economic forecast, the European Commission (EC) said the economy of the currency bloc - which consists of 17 countries - would shrink by 0.3% this year.

This follows a 0.6% contraction last year, and marks a reversal from the EC's previous prediction of 0.1% growth in 2013.

But it stressed that the eurozone would return to growth in 2014 - when the economy would increase by 1.4%.

Not all economists were convinced by the EC's forecast, however.

"I'm a little sceptical about their forecast of a pronounced recovery next year," Ken Wattret, European economist at BNP Paribas, told Sky News.

"I think the headwinds to growth in the euro area from the banking system, from fiscal policy, from political uncertainty - I think they're rather persistent."

The EC predicted that Germany's economy would grow by 0.5% this year, but France, - Europe's second-largest economy - will post growth of just 0.1%.

Italy's economy is expected to contract by 1%, and Spain's by 1.4%.

The extended recession will see millions more people lose their jobs, the EC said, with the level of unemployment across the region expected to continue to rise.

Unemployment in the eurozone is forecast to hit 12.2% in 2013 - up from 11.4% last year - which could take the number of people without a job to more than 20 million.

The European Commissioner for economic and monetary affairs, Olli Rehn, said "decisive" policy actions were "paving the way for a return to recovery".

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