Double-dip recession a possibility as growth decreases
"This is a wake-up call," the European Commission's economics chief Olli Rehn said last night amid a warning of a "gloomy" economic future and double-dip recession as growth stalls across the bloc. It is also more gloomy on Ireland's growth rate for next year.
Figures unveiled yesterday by the European Commission showed average growth in the EU's 27 economies is to fall from 1.6pc this year to 0.6pc in 2012 as a result of the sovereign debt and banking troubles gripping the 17 single-currency countries.
Eurozone growth will fall from 1.5pc to 0.5pc, prompting the EU to urge tough budget cuts and economic reforms to ward off market speculation against the euro.
"There is a risk of a new recession unless determined action is taken," Mr Rehn said.
The grim picture for 2012 is being worsened by sluggish progress in talks on a second Greek bailout and a boost for the eurozone's €440bn financial stability facility, which will take "more than a few months" to work out, the EC said in its latest quarterly forecast.
Political problems in Italy have also plagued efforts to reverse the market rout that has seen bond yields skyrocket to above 7pc, close to levels seen in Ireland and Portugal before those governments sought aid from the EU and IMF.
Mr Rehn estimated that if Italian yields rise by an extra point it will cut Italian growth, advising the beleaguered government of Silvio Berlusconi to "restore political stability and the capacity of decision-making" and quickly implement a promised €59bn austerity plan and round of privatisations, labour market and pension reforms.
Greek woes have also cast a shadow over eurozone efforts to firefight the crisis.
Ireland's economy has bucked the EU trend and posted 1.1pc growth this year.
However, while the economy will grow again by 1.1pc in 2012, the figure is lower than expected in the EU's previous forecast, which foresaw an expansion of 1.9pc.