By Simon Miller
The Eurozone is in a mild recession according to the latest forecasts from the European Commission (EC).
Following contraction in late 2011, the EC forecasts that real GDP will stagnate in the European Union (EU) and contract by -0.3% in the euro area in 2012 while 2013 is expected to see growth forecasted at 1.3% for the EU and 1% for the eurozone.
In its forecast, the EC said: “While uncertainty about economic and financial prospects remains high, strong policy actions and major advancements in the EU institutional framework have brought about an easing of financial market tensions in the beginning of 2012 and a tentative stabilisation of confidence, expected to further strengthen over the forecast period.”
Unemployment is expected to remain high at 10% in the EU and 11% in the euro area over the forecast period while inflation is set to moderate gradually as the impact of higher oil prices and tax increases fades away.
Fiscal consolidation is forecast to progress, with public deficits in 2013 declining to 3.3% in the EU and just below 3% in the euro area.
“The economic situation differs considerably across member States, also in view of the ongoing adjustment to the large disparities in external positions and structural conditions that have come to the fore over the last year,” said the forecast.
Olli Rehn, Commission vice-president for Economic and Monetary Affairs and the Euro said: "We are witnessing an ongoing adjustment of the fiscal and structural imbalances built up before and after the onset of the crisis, made worse by the still weak economic sentiment."
He added: "Without further determined action, however, low growth in the EU could remain. 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."
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