EU sees deeper euro zone recession in 2013, slower deficit cuts

BRUSSELS: The euro zone economy will contract by more than expected
this year and budget deficits will decline more slowly, the European
Commission said on Friday as it set out forecasts for the next two
years.
France, Spain, Italy and the Netherlands - four of the
five largest euro zone economies - will be in recession through 2013,
the Commission's forecasts showed, with only Germany, the largest euro
zone economy, managing to eke out growth.
"In view of the
protracted recession, we must do whatever it takes to overcome the
unemployment crisis in Europe. The EU's policy mix is focused on
sustainable growth and job creation," EU Economic and Monetary Affairs
Commissioner Olli Rehn said.
"Fiscal consolidation is
continuing, but its pace is slowing down. In parallel, structural
reforms must be intensified to unlock growth in Europe."
The
Commission said the euro zone economy would shrink 0.4 percent this
year and grow 1.2 percent next year, revising down its projections from
last February of a 0.3 percent recession and 1.4 percent growth
respectively.
The forecast is roughly in line with the mid-point
of the -0.9 to -0.1 percent range forecast for 2013 by the ECB in
March, and the 0.0 to 2.0 percent growth range seen for 2014.
The
expectations underline a shift of focus in the 17 countries that share
the euro from sharp fiscal consolidation in the first years of the
sovereign debt crisis to economic growth as earlier radical deficit
cuts and European Central Bank action restored some market trust in euro zone finances.
Economic
growth will be slower than thought in all the biggest euro zone
countries, with France even dipping into a recession of 0.1 percent,
rather than growing 0.1 percent as forecast in February, the Commission
said.
The only positive change against the February forecasts
was Greece, where the economy is now seen contracting 4.2 percent this
year, rather than the previous 4.4 percent.
To reduce the
negative impact of fiscal consolidation on growth, the overall euro
zone budget deficit reduction will be marginally slower this year and
next compared with forecast from three months ago. Country differences
are bigger.
The aggregate euro zone deficit is to fall to 2.9
percent of gross domestic product this year and to 2.8 percent next
year from 3.7 percent last year -- only 0.1 percentage point for each
year less than previously envisaged.
But the slower
consolidation will be most pronounced in Italy, which is now seen
reducing its budget shortfall only to 2.9 percent of GDP this year from
3 percent in 2012, rather than to the 2.1 percent forecast in February.
The
main reason for that is a deeper than expected recession this year and
a more modest economic rebound in 2014, when Rome is to bring the
budget gap down to 2.5 percent, against the earlier forecast 2.1
percent.
France, also in recession, is to have a budget
shortfall of 3.9 percent this year and 4.2 percent in 2014 unless
policies change, against earlier forecasts of 3.7 percent and 3.9
percent respectively.
Portugal, on a euro zone financial
lifeline, will cut its budget deficit this year only to 5.5 percent of
GDP from 6.4 percent last year because the recession there will be
deeper than expected. The 2013 target in February was 4.9 percent. -
Reuters