The eurozone economy is heading into its second recession in just three years the European Commission has warned.
But it will be mild and temporary and there are signs of recovery according to the economists at the EU’s executive.
EU Economic and Monetary Affairs Commissioner Olli Rehn said the entire European Union is also forecast to stagnate this year: “GDP of the European Union as a whole is expected to remain unchanged in 2012 while the euro area has entered into a mild recession.”
Warning that the eurozone has yet to break its vicious cycle of debt, the experts in Brussels predict the region’s economy will shrink 0.3 percent; last autumn it forecast growth growth of 0.5 percent for this year.
Spain’s GDP will contract one percent, Italy’s 1.3 percent, Portugal by 3.3 percent and Greece 4.4 percent in its fifth year of recession.
Economists are increasingly questioning the EU’s austerity strategy for southern Europe as it takes its toll on jobs and people’s living standards, but the Commission insists budget cuts are the way to regain investor confidence.
The growth forecast for the eurozone is slightly more optimistic than the International Monetary Fund’s view that output in the currency bloc will dip 0.5 percent this year. But both agree the bloc will manage only a modest recovery in the final months of 2012.
The forecasts could still worsen. They rely on the assumption that EU leaders will act to resolve the sovereign debt crisis, which is now in its third year and has shattered investor confidence in a region once regarded as one of the world’s safest havens.
One positive note from the Commission’s forecasts was that inflation is expected to decline to 2.1 percent from last year’s 2.7 percent.