Eurozone recession is said to continue throughout 2013, and growth is not expected to return until 2014, the European Commission said, painting a bleak picture for the year. The Commission also reversed its prediction for an end to recession this year, blaming a lack of bank lending and record joblessness for delay in the UK economy’s recovery.
The eurozone, which encompasses 17 nations and generates nearly a fifth of global output, is likely to shrink 0.3% in 2013, meaning that eurozone will remain in the clutches of recession. Recently, the eurozone crisis deepened in Spain because of budget cutbacks and increased unemployment levels. European Commission had predicted 0.1% growth in eurozone’s economy for 2012. But factors such as tight lending conditions for companies and households, job cuts and frozen investment have delayed an expected recovery, the Commission said. The European Commission sees the euro zone economy growing 1.4% in 2014, with a figure of -0.6% for 2012.
Joblessness in the euro zone is set to peak at 12.2%, or more than 19 million people, in 2013, and both private and public consumption will not make any contribution to improving output, the European Commission warned. The European Commission’s outlook raises the prospect of further interest rate cuts by the European Central Bank (ECB) to boost the economy by reducing the cost of lending for companies and families, although with banks reluctant to lend, the desired effect may not be felt. Consumer inflation is forecast by the Commission to be 1.8% for 2013, and with such pressures, the ECB may feel more comfortable cutting rates to below the current 0.75% level.
The European Commission’s overall view is a little more pessimistic than that of the International Monetary Fund, which sees a 0.2% euro zone contraction this year. The ECB previously cut its estimate of euro zone gross domestic product (GDP) for next year to between a fall of 0.9% and growth of just 0.3%.