EU expects Eurozone to suffer mild recession

Half the economies in the 17-nation Eurozone are forecast to shrink this year, raising concerns that government austerity programmes introduced to combat unsustainable debt levels are holding back growth.

In its latest projections, the European Commission, the European Union's executive body, forecast a 0.3 per cent contraction in the Eurozone economy for 2012, with Greece's economy leading the way downward with a massive 4.4 per cent decline.

In its last forecast in November, the Commission had predicted a 0.5 per cent expansion across the Eurozone economy following last year's 1.4 per cent growth. The difference this time is that it now expects the economies of Belgium, Spain, Italy, Cyprus, the Netherlands and Slovenia to contract in 2012, not just Greece and Portugal.

The overall decline is limited by resilient activity the Eurozone's two largest economies, Germany and France. Growth in Germany for the coming year is expected to hit 0.6 per cent, while France is forecast to grow by 0.4 per cent.

Describing the economic conditions for 2012 as a "mild recession", Olli Rehn, European Commissioner for Economic and Monetary Affairs, added that although growth had 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."

He said the forecast was based on the assumption that uncertainty created by the debt crisis "will gradually fade away".

Italy, the Eurozone's third-largest economy, is predicted to contract by 1.3 per cent this year, in contrast to the 0.3 per cent growth predicted in November.

And Spain is expected to contract one per cent in 2012, against the 0.7 per cent growth predicted in the fall.

Flat growth

The wider 27-nation EU, which includes non-euro countries, is expected to post flat growth this year. Britain is forecast to eke out growth of 0.6 per cent, while Poland is expected to post a 2.5 per cent expansion, the highest rate across the EU.

Three Eurozone countries - Ireland, Portugal and Greece - have already received bailouts to help them solve their debt crises.

Of the three, only Ireland's economy offers glimpse of hope, with a forecast growth of 0.5 per cent this year on top of 2011's 0.9 per cent growth.