E.U. predicts Eurozone recession to continue

May 03, 2013, 6:01 AM EDT
REUTERS/Marko Djurica/Files

BRUSSELS (AP) — The recession in the euro area will be worse than expected with unemployment remaining at record levels, according to the latest economic forecast from the European Union.

In Friday's spring economic forecast, the EU said that gross domestic product in the 17 EU countries that use the euro will shrink by 0.4 percent this year, better than the 0.6 percent for 2012 but 0.1 percentage points worse than the EU had forecast back in February.

"Grappling with the aftermath of a profound financial and economic crisis, the EU economy is set to pick up speed only very slowly in the course of this year," the report said.

Across the eurozone, the three-year crisis over too much government debt and the accompanying austerity measures are weighing on activity — even in some of the more prosperous countries. In Germany, the eurozone's largest economy, GDP growth is set to fall in 2013 from 0.7 percent in 2102 to 0.4 percent this year as demand from other struggling countries in Europe falls. France, meanwhile, is expected to fall into negative territory in 2013, with GDP dropping 0.1 percent in the year.

Some countries, however, will fare far worse than others. In crisis-hit Cyprus, GDP is set fall by 8.7 percent this year.

Unemployment across the eurozone is expected to hit an average of 12.2 percent, up from 11.4 percent in 2012. In both Greece and Spain it is expected to peak at 27 percent.

Commissioner Olli Rehn said that "in view of the protracted recession, we must do whatever it takes to overcome the unemployment crisis."

There are currently 19.2 million people out of work in the eurozone, leaving EU leaders with an uphill battle to turn the economy around while making sure the population keeps on backing the austerity measures aimed at whipping public finances back in shape.

Rehn insisted that after the 2012 recession, GDP growth is expected to start pick up again the in the second half of 2013. He added that, under the assumption of unchanged policies, GDP would even rise by 1.2 percent in 2014.

But overall, the news remained bleak as the report said that "the recovery of economic activity is expected to be too slow to reduce joblessness." Not much improvement in unemployment is expected in 2014 and "differences across member states are expected to remain very large."