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Wednesday 20 August 2014

EU downgrades economy predictions

Published 07/11/2012 | 12:23

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The European Commission expects the 17 countries that use the euro to slide into recession this year

The European Union is downgrading its predictions for the 27-country bloc's economy, warning it will decline further and recover more slowly than previously forecast as it struggles to resolve the debt crisis.

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The European Commission, the executive arm of the EU, confirmed its prediction that the 17 countries that use the euro will slide into recession this year, with gross domestic product falling 0.4%.

But it also expects the entire EU to contract by 0.3%. Both predictions are worse than the ones made this spring.

The commission has also downgraded its forecast for 2013. It had expected the eurozone to grow by 1% - now it predicts an uptick of 0.1%. Official third-quarter GDP figures for the EU are released on November 15.

The eurozone has made progress this year towards resolving its debt crisis, which has been dragging down economies throughout the EU and beyond. Countries that use the euro have slashed spending and promised to keep their deficits in check; they have vowed to better protect their banks by improving how they are regulated and supervised; and the European Central Bank has put in place a plan to help countries struggling with high borrowing costs, the hallmark of the crisis and the reason some have sought bailouts.

But those measures are still to be felt in the real economy.

The unemployment rate across the eurozone is at a record high of 11.6%, and it is 10.6% in the wider EU.

In the latest in a steady stream of job cuts Danish wind turbine maker Vestas, Swedish wireless equipment group LM Ericsson, and Dutch bank ING announced a total of almost 7,000 layoffs. Eurostat, the EU's statistics agency, also said retail sales in the eurozone shrank 0.2% in September.

Many economists have argued that, in solving one crisis by cutting government spending and raising taxes, politicians have exacerbated another - slow or negative growth. Meanwhile, tighter banking rules have hurt lending, the fuel economies need to grow.

The commission predicted that Germany, Europe's largest economy, would eke out just 0.8% growth in 2012, compared with its earlier forecast of 1.7%. ECB President Mario Draghi warned that the country is no longer insulated from the troubles in the rest of the eurozone and that "the latest data suggest that these developments are now starting to affect" its economy.

Press Association

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