European Commission cuts eurozone 2012 growth forecast to 0.5%

10 November 2011 15:27  [Source: ICIS news]

LONDON (ICIS)--The European Commission cut its 2012 eurozone growth forecast to 0.5% from 1.8% as the EU's economic recovery ground to a halt, it said on Thursday. 

The commission said that since the summer the outlook has taken a turn for the worse, warning that a new recession is a possibility.

“The economic recovery has come to a standstill. A stagnation of GDP is now expected in the current and coming quarters,” the commission said in its European Economic Forecast report.

“The sovereign-debt crisis in euro area member states has spread, debt sustainability in advanced economies outside the EU has also moved into investors' focus, and the global economy has lost steam,” it added.

Italy’s rising debt costs hit markets on Thursday, while Greece’s struggle to form a government has prolonged a decision on the country’s bailout package. However on Thursday it finally appointed a new interim prime minister, Lucas Papademos, a former European Central Bank vice-president.

The commission said annual GDP growth in 2012 is forecast at 0.6% in the EU and 0.5% in the euro area, while growth in 2013 is expected to remain low at 1.5% in the EU and 1.3% in the euro area.

“No group of member states will escape the expected slowdown, but growth differences will persist,” it added.

Despite the growth cut, the report said that confidence might return faster than expected with potential for an earlier recovery of investment and private consumption if commodity prices fall.

“Global growth could prove more resilient than projected in the baseline scenario and provide support to EU net exports. Finally, a larger decline in commodity prices could enhance real incomes and consumption,” it added.

The commission's vice-president for economic and monetary affairs, Olli Rehn, said: “The key for the resumption of growth and job creation is restoring confidence in fiscal sustainability and in the financial system and speeding up reforms to enhance Europe's growth potential.”

Read Paul Hodges' Chemicals and the Economy blog

By: Leigh Stringer
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