European Union economists are predicting that the euro zone economy will shrink again this year, by 0.3%. That’s better than the 0.5% contraction in 2012 (pdf) but still pretty dismal compared to the EU’s forecast in November that predicted 0.1% growth for the year. If the forecast comes true, it also means the euro zone economy will have shrunk for three out of the last five years.
In rather dramatic language, the European Commission said 17-country currency bloc is “shackled” by weak global growth, a lack of bank lending and high unemployment. Those factors combined with severe cutting back by companies and governments have pushed the euro area back into a recession, the commission said in its Winter Forecast (pdf) released this morning. The commission also said the EU economy overall was suffering a “double disparity,” characterized by a weak real economy and dramatically uneven growth across member states. But it’s not all bleakness: the commission believes the euro zone will gradually return to growth midway in the year and push back into positive territory in 2014, at 1.4% growth.
Here are a few charts from the commission’s report.
The commission said that Italy’s economy would shrink by 1% this year, compared to a previously smaller estimate of a 0.5% contraction. Cyprus is forecast to see a 3.5% decline, compared to an earlier estimate of 1.7%. Greece is predicted to enter its sixth year of a contraction, at -4.4%, with unemployment to hit 27%. In contrast, Germany’s economy should grow by 0.5% in 2013, though that’s still lower than an earlier estimate of 0.8%. And France will grow 0.1%, instead of 0.4%. Here are the commission’s forecasts for real GDP in 2013 and 2014 as well as how countries performed in 2011 and 2012:
And here is another way to look at them via the Gaurdian.
Low consumption as a result of high unemployment looks set to drag down the economy this year. Joblessness is forecast to reach 12.2% this year, meaning more than 19 million people in the euro zone will be unemployed, the commission said. “This has grave social consequences and will, if unemployment becomes structurally entrenched, also weigh on growth perspectives going forward,” the commission said. Here’s a look at that trend.
Demand for EU goods, however, will be the region’s lifeline and main driver of a return to growth, the EU says (hopes). The commission predicts that the export of goods and services should grow by about 2.5% in the EU and the euro area. In 2014, it predicts export growth will be 5% in the euro zone and the EU as a whole.