Gloomy forecast for euro zone

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Gloomy forecast for euro zone

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The European Commission says the euro zone’s economic growth will slow sharply next year.

It predicts weak confidence will undermine investment and consumption and government spending cuts will hit domestic demand.

It sees growth slowing to 0.5 percent next year from an expected 1.5 percent this year picking up to 1.3 percent in 2013.

Economic and Monetary Affairs Commissioner Olli Rehn said the 17 countries sharing the euro must respond: “This forecast is in fact the last wake-up call, the recovery in the European Union has now come to a standstill and there is a risk of a new recession unless determined action is taken.”

In its twice-yearly economic forecast for all the 27 countries in the European Union, the Commission said there is a high probability of what it calls a “more protracted period of stagnation”.

It does not expect a recession, but added that given the unusually high uncertainty around key policy decisions it cannot exclude a deep and prolonged recession.

There is no good news on employment. Rehn said: “While jobs are increasing in some member states, no real improvement is forecast in the unemployment situation in the EU as a whole.”

“The key for the resumption of growth and job-creation is restoring confidence in fiscal sustainability and in the financial system and speeding up reforms to enhance Europe’s growth potential,” he said.

Inflation is expected to slow from 2.6 percent this year to 1.7 percent next year.