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February 23, 2013

Eurozone recession expected to bottom out

The Associated Press

BRUSSELS - The European Union predicted Friday that the economy of the 17 member countries that use the euro will shrink again in 2013 even though it will see its fortunes improve in the second half of the year.

In its winter forecast, the EU Commission, the EU's executive arm, said the eurozone is likely to shrink a further 0.3 percent this year, in contrast to November's prediction of 0.1 percent growth.

Across the eurozone, it said the debt crisis and the associated belt-tightening are weighing on activity. Official figures showed the eurozone contracted 0.6 percent in the final quarter of 2012 from the previous three-month period.

The eurozone has been in recession -- officially defined as two consecutive quarters of negative growth -- since the second quarter of 2012, when concerns about the future of the euro were particularly acute.

Many countries are in deep recessions, such as Greece and Spain, as they push spending cuts and tax increases to deal with their public finances. Others have suffered in the fallout, such as export powerhouse Germany, Europe's largest economy, which contracted by a quarterly rate of 0.6 percent in the final quarter of 2012.

Despite what it terms "headwinds," the commission expects the eurozone recession to bottom out over the first half of 2013. By the fourth quarter, it forecast that the eurozone economy will be 0.7 percent bigger than the same period in 2012. In 2014, growth of 1.4 percent was penciled in.

A number of recent economic indicators have pointed to an improving outlook, particularly in Germany. Much of the recent calm in financial markets with regard to the eurozone has been credited to the debt-reduction measures and a commitment by European Central Bank President Mario Draghi to do "whatever it takes" to save the euro.

The wider economy of the 27-nation EU, which includes non-euro members such as Britain and Poland, is also bottoming out, according to the commission. Here too, it lowered its 2013 growth forecast from 0.4 percent to 0.1 percent. And in 2014, it expects the world's largest economic bloc with 500 million people to grow 1.6 percent.

One of the key problems afflicting Europe is unemployment, and the commission said an improvement was unlikely soon, with the jobless rate in the eurozone rate swelling to a record 12 percent.

While unemployment is high, the trend is not uniform: Germany has seen unemployment falling while Greece and Spain have seen their rates spike to around 26 percent. The commission expects them to rise to around 27 percent.

The commission forecast that Germany will grow 0.5 percent this year, but France will record only 0.1 percent growth. Italy and Spain are expected to decline 1 percent and 1.4 percent, respectively.





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