'Disappointing' 0.4% contraction this year to be followed by 0.1% growth in 2013, with unemployment rising to 11.8%
The eurozone will struggle to emerge from a double-dip recession next year as deep budget cuts stifle growth, the European commission has said.
In a gloomy health check on the state of the 17 countries that belong to the monetary union, Brussels said a sharper than expected fall in output in 2012 would be followed by a virtually non-existent recovery in 2013.
The commission said the eurozone as a whole would contract by 0.4% this year and grow by 0.1% in 2013. It cut its forecasts for the single currency's "big four" economies – Germany, France, Italy and Spain – as it predicted that unemployment would rise to a fresh peak of 11.8% next year.
"Europe is going through a difficult process of macroeconomic rebalancing, which will still last for some time," said the economic and monetary affairs commissioner, Olli Rehn. "Europe must continue to combine sound fiscal policies with structural reforms to create the conditions for sustainable growth to bring unemployment down from the current unacceptably high levels."
Brussels blamed the deepening sovereign debt crisis and financial market concerns about a possible breakup of the eurozone for the "disappointing" growth performance in 2012. It said domestic demand would make no contribution to eurozone GDP in 2013 as the lack of jobs and tax increases hit consumer spending.
The commission expressed confidence that by 2014 the benefits of the austerity programmes would bear fruit, leading to expansion of 1.4%.
Although the UK is expected to grow by just 0.9% next year, Brussels believes it will expand more quickly than any of the major economies of the eurozone. The commission has pencilled in growth of 0.8% for Germany, 0.4% for France, a contraction of 0.5% for Italy and a retrenchment of 1.4% for Spain. In all cases the predictions are for output to be weaker than expected by national governments, leading to budget deficit reduction targets being missed.
Greece is one eurozone economy where the commission's forecasts are less pessimistic than those of the government. The EU executive believes the Greek economy will shrink by 6% this year and 4.2% in 2013 before finally emerging from a six-year slump with growth of 0.6% in 2014. The government is assuming contraction of 6.5% in 2012, 4.5% in 2013 and growth of 0.2% growth in 2014.
Spain is expected to remain the eurozone's unemployment blackspot, with 26.6% of the workforce jobless in 2013. Greece's unemployment is forecast to peak at 24%, with another six countries – Ireland, France, Italy, Cyprus, Portugal and Slovakia – having double-digit jobless rates.
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