EU forecasts 0.3% eurozone contraction in 2012

PanARMENIAN.Net - The European Union estimates that the economy of the 17 countries that use the euro is in recession in the wake of a debt crisis that has prompted savage spending cuts and a jump in unemployment to record highs, The Associated Press reports.

The European Commission, the executive arm of the EU, forecasts that the eurozone economy will contract by 0.3 percent in 2012 and grow by 1 percent next year. Its prediction for 2012 is far weaker than the one it gave last November, when it predicted growth of 0.5 percent. A year ago it was predicting growth of a relatively healthy 1.8 percent.

The forecasts provide clear evidence of the impact of Europe's debt crisis on the eurozone economy over the past year.

Olli Rehn, the EU's monetary affairs chief, said the recession is likely to be mild and short-lived.

He said a "recovery is in sight" but urged member countries not to give up on their efforts to get their public finances back into shape, though he noted more could be done to give growth a boost.

"Sound public finances are the condition for lasting growth, and building on the new strong framework for economic governance, we must support the adjustment by accelerating stability and growth-enhancing policies," said Rehn.

How to get the faltering eurozone economy growing again has become the hot topic in European policymaking circles over the past few weeks. France’s presidential election victory by Francois Hollande was due in large part to his promotion of the need for a greater focus on growth in Europe. So far, austerity measures, such as cuts to wages and pensions as well as tax rises, have been the main policy response to too much government debt in a number of eurozone countries.