The “euro area is in mild recession with signs of stabilisation”, according to a forecast by the European Commission published yesterday.
The stalling of the recovery in late 2011, coinciding with Greece’s economic crisis and bail-out, is set to extend into the first two quarters of 2012. However, modest growth is predicted to return in the second half of the year.
There is no growth predicted in 2012 and the forecast remains unchanged with the EU at 0.0% the euro area to contract by 0.3%. Uncertainty remains high and developments across countries are uneven.
UK businesses are likely to face higher costs after the inflation forecast for 2012 was revised upwards, due to persistently high energy prices and increases in indirect taxes, which will increase the pressure on profit margins. It now stands at 2.3% in the EU and 2.1% in the euro area.
Commission vice-president for economic and monetary affairs, Olli Rehn, said: “Although growth has stalled, we are seeing signs of stabilisation in the European economy. Economic sentiment is still at low levels, but stress in financial markets is easing.”
Mr Rehn added: “Many of the steps that were essential to deliver financial stability and to establish the conditions for more sustainable growth and job creation have now been taken. With decisive action, we can turn the corner and move from stabilisation to boosting growth and jobs.”
Growth will be highest in countries outside of the euro zone and lowest, or negative across countries within it. The UK’s estimated 0.6% growthfor 2012 is higher than many EU nations. Only Hungary nation outside of the euro zone was expected to contract, with steady growth predicted across the nine other EU counties operating outside of the currency.
The Commission said that “while the broad financial-market situation in the EU remains fragile, and uncertainty is still weighing strongly on private investment and consumption, the risk of a credit crunch has been reduced.”
It continued: “Amid lingering uncertainty, risks to the EU growth outlook for 2012 are tilted to the downside. If an aggravation of the sovereign-debt crisis were to result ultimately in a credit crunch and a collapse in domestic demand, this would probably entail a deep and prolonged recession.”