Euro zone economy to shrink again in 2013, EU says

Fri Feb 22, 2013 7:39am EST
 
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By Robin Emmott

BRUSSELS (Reuters) - The euro zone will not return to growth until 2014, the European Commission said on Friday, reversing its prediction for an end to recession this year and blaming a lack of bank lending and record joblessness for delaying the recovery.

The 17-nation bloc's economy, which generates nearly a fifth of global output, will shrink 0.3 percent in 2013, the Commission said, meaning the euro zone will remain in its second recession since 2009 for a year longer than originally foreseen.

The Commission, the EU executive, late last year forecast 0.1 percent growth in the euro zone's economy for 2012, but now says tight lending conditions for companies and households, job cuts and frozen investment have delayed an expected recovery.

The Commission sees the euro zone economy growing 1.4 percent in 2014, with a figure of -0.6 percent for 2012.

"The improved financial market situation contrasts with the absence of credit growth and the weakness of the near-term outlook for economic activity," said Marco Buti, the commission's director-general for economic and monetary affairs. "The labor market... is a serious concern," he said, in a preamble to the Commission's latest forecasts.

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 saviors in terms of generating growth.

Joblessness in the euro zone is set to peak at 12.2 percent, or more than 19 million people, in 2013, the Commission said, and both private and public consumption will not make any contribution to improving output, instead dragging on the economy.   Continued...

 
European Economic and Monetary Affairs Commissioner Olli Rehn presents the EU Commission's interim economic forecast during a news conference at the EU Commission headquarters in Brussels February 22, 2013. REUTERS/Francois Lenoir