EU: Eurozone recession to be worse, rebound slower
Brussels • Europe's economy is still reeling and unemployment could remain high for years in spite of the progress made in solving the debt crisis, the European Union warned Wednesday as it downgraded its forecasts for the 27-country bloc.
The European Commission, the executive arm of the EU, on Wednesday revised its forecast for the economy of the entire region, saying that it now expected gross domestic product to contract by 0.3 percent on an annual basis this year, rather than remaining flat as it predicted in the spring. It also said that the 17 countries that use the euro will contract, with GDP falling 0.4 percent, against a previous expectation of a 0.3 percent fall.
But the most significant downgrades are for next year's forecasts. The commission had expected the eurozone to find its footing in 2013, with 1 percent growth. Now it predicts only a 0.1 percent uptick. For all 27 countries in the EU, it forecasts 0.4 percent growth, compared with 1.3 percent last spring.
The report also suggests that unemployment won't start falling until 2014 and then only slightly.
Official third-quarter GDP figures for the EU and the eurozone, which will show whether the region has entered recession, are due to be released on Nov. 15. A recession is defined as two quarters in a row with negative growth.
"Europe is going through a difficult process of macroeconomic rebalancing and adjustment, which will last for some time still," Olli Rehn, the EU's economic and monetary affairs commissioner, told reporters. "Market stress has been reduced but there is certainly no room for complacency."
The eurozone has made progress this year toward resolving its debt crisis, which has been dragging down economies throughout the EU and beyond. Countries that use the euro have slashed spending and promised to keep their deficits in check; they've vowed to better protect their banks by improving how they're regulated and supervised; and the European Central Bank has put in place a plan to help countries struggling with high borrowing costs, the hallmark of the crisis and the reason some have sought bailouts.
But those measures have not yet been felt in the real economy. The unemployment rate across the eurozone is at a record high of 11.6 percent, and it is 10.6 percent in the wider EU. In the latest in a steady stream of job cuts, Danish wind turbine maker Vestas, Swedish wireless equipment group LM Ericsson, and Dutch bank ING announced a total of almost 7,000 layoffs Wednesday. Eurostat, the EU's statistics agency, also said retail sales in the eurozone shrank 0.2 percent in September.