There is no chance of a return to economic growth in the eurozone until next year.
That was the latest gloomy forecast from the European Commission on Friday as it reversed its prediction for an end to recession this year.
The recovery delay is being blamed on a lack of bank lending and record high joblessness.
The Economic Affairs Commissioner Olli Rehn said: “Ongoing rebalancing of the European economies is continuing to weight on growth in the short term. The current situation can be summarised like this – we have disappointing hard data from the end of last year, some more encouraging soft data in the recent past and growing investor confidence in the future.”
Economy down, unemployment up
The bloc’s economy will shrink 0.3 percent this year with unemployment peaking at 12.2 percent of the workforce.
For 2014 the Commission sees 1.4 percent growth with the jobless total easing only slightly to 12.1 percent. Last year’s jobless rate was 11.4 percent and the economy is estimated to have shrunk 0.6 percent.
Brussels said the situation with the labour market is “a serious concern” as there will be more than 19 million people out of work this year in the 17 countries that make up the eurozone.
The European Central Bank’s promise last year to do what it takes to defend its common currency has removed the risk of a break-up of the euro zone, and member countries’ borrowing costs have come down from unsustainable levels.
But the damage from the 2008/2009 global financial crisis and the ensuing euro zone debt crisis has been greater than expected on the real economy, with global demand for euro zone exports one of the few saviours in terms of generating growth.
The outlook raises the prospect of further interest rate cuts by the ECB to jump-start the economy by reducing the cost of lending for companies and families, although with banks reluctant to lend, any impact may be muted.