The eurozone is on track for a slow recovery from recession later this year, but the European Commission’s spring economic forecast said Spain and France will miss their deficit reduction targets.
EU Economic Affairs Commissioner Olli Rehn is guardedly optimistic for the entire 17-nation eurozone.
Rehn told reporters: “The European economy is estimated to be currently in a mild, but short lived, recession and then subsequently a slow and subdued recovery is forecast to begin from the second half of the current year onwards and continue over the forecast horizon of this year and next year”
The currency bloc’s economy is forecast to shrink by 0.3 percent this year and grow by 1.0 percent next year.
Eurozone debt will be just under 92 percent of gross domestic product.
Unemployment will stay at a record high 11 percent this year and next.
The commission’s economists pointed out there are large disparities between member states.
Facing “difficult times ahead,” Spain is forecast to be the only eurozone nation in recession in 2013, shrinking by 0.3 percent after contracting by 1.8 percent this year, the commission said.
Compounding Spain’s problems, the commission said the country’s public deficit would reach 6.4 percent this year, way off the government’s target, and it would be 6.3 percent in 2013.
Spain was originally supposed to bring the deficit down to 4.4 percent this year, but Prime Minister Mariano Rajoy convinced EU partners to raise the target to 5.3 percent after it hit a worse-than-expected 8.5 percent last year.
Despite the higher figure, Rehn said he had confidence in Spain’s determination to meet its budget deficit targets.
“The Commission has full confidence in the determination of the Spanish government to meet the fiscal target in line with the pact. For Spain, the key to restoring confidence and growth is to tackle the immediate fiscal and financial challenges with full determination.”
“This calls for a very firm grip to curb the excessive spending of regional governments,” he added.
Asked about a divergence between the Commission’s forecasts for the French 2013 budget deficit and those of the French authorities, Rehn said France had a more optimistic assessment resulting from its views on economic growth.
“It is true that the forecasts of the French authorities are slightly more optimistic than ours, in particular for next year. The differences are due to the pace of recovery of investments and exports.”
France’s public deficit is expected to hit 4.2 percent in 2013, higher than President-elect Francois Hollande’s 3.0 percent target, while the economy will grow by 1.3 percent next year, also below the Socialist leader’s projection of 1.7 percent.
Rehn added: “We are waiting for the French authorities to decide which measures will be introduced for 2013.”
The European Commission believes Italy can meet its structural fiscal targets this year and next, and does not see a need for new measures there.
Olli Rehn said: “Italy is on track to meet its structural fiscal targets for 2012 and 2013, so from that point of view there is no need for new measures of fiscal consolidation.”