Eurozone economy to shrink by 0.3%, EU Commission says

Olli Rehn: "The European economy is estimated to be currently in a mild but short-lived recession"

The eurozone economy is forecast to shrink this year as its debt crisis continues to bite.

The European Commission's spring forecast confirmed its prediction of a 0.3% contraction in 2012 in the economies of the 17 countries that use the euro.

It predicted growth of 1.0% for the eurozone in 2013.

European Commissioner for Economic and Monetary Affairs Olli Rehn said "a recovery is in sight" for the eurozone.

But he added: "The economic situation remains fragile, with still large disparities across member states."

For all 27 countries in the EU, the Commission is predicting zero growth for 2012, with 1.3% growth next year.

Growth figures for the first quarter of 2012 will be released by the European statistics agency Eurostat on Tuesday 15 May.

"Economic activity in the EU contracted in the last quarter of 2011 and is estimated to have also done so in the first quarter of 2012," the Commission said in its statement.

Two consecutive quarters of economic contraction are generally taken to indicate a recession is underway.

But the Commission believes that a gradual recovery will start in the second half of the year.

'Longing for the turnaround'

Among the individual member states, the only one predicted to see an economic contraction in 2013 is Spain, which is forecast to decline by 0.3%.

The Commission predicts Spanish unemployment will continue to be the highest in the EU, with the jobless rate hitting 24.4% this year and 25.1% in 2013.

The unemployment rate in the eurozone is forecast to be 11% this year and in 2013, and 10.3% in the EU for both years.

The Commission describes Greece as "an economy longing for the turnaround".

It predicts a contraction in the Greek economy of 4.7% this year and zero growth for 2013, with unemployment at 19.7% in 2012 and 19.6% the following year.

"The recovery, which was previously expected for this year, will be further delayed with, at best, an insignificant improvement in activity in 2013," the Commission said.

Credit ratings agency Fitch warned that if Greece left the eurozone it was "likely" to put the sovereign credit ratings of all euro member states on negative ratings watch.

Cyprus, France, the Republic of Ireland, Italy, Portugal, Spain, Slovenia and Belgium are already on negative ratings watch and are most at risk of a Fitch credit downgrade if Greece exited the euro.

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