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Eurozone economy to shrink again in 2013, EU says Eurozone economy to shrink again in 2013, EU says
(35 minutes later)
The eurozone will not return to growth until 2014, the European commission said on Friday, reversing its prediction for an end to recession this year and blaming a lack of bank lending and record joblessness for delaying the recovery.The eurozone will not return to growth until 2014, the European commission said on Friday, reversing its prediction for an end to recession this year and blaming a lack of bank lending and record joblessness for delaying the recovery.
The 17-nation bloc's economy, which generates nearly a fifth of global output, will shrink 0.3% in 2013, the commission said, meaning the eurozone will remain in its second recession since 2009 for a year longer than originally foreseen.The 17-nation bloc's economy, which generates nearly a fifth of global output, will shrink 0.3% in 2013, the commission said, meaning the eurozone will remain in its second recession since 2009 for a year longer than originally foreseen.
The commission, the EU executive, made a forecast late last year for 0.1% growth in the eurozone's economy for 2012, but now says tight lending conditions for companies and households, job cuts and frozen investment have delayed an expected recovery. The commission, the EU executive, made a forecast late last year for 0.1% growth in the eurozone's economy for 2012, but now says tight lending conditions for companies and households, job cuts and frozen investment have delayed an expected recovery. It sees the eurozone economy growing 1.4% in 2014, with a figure of -0.6% for 2012.
The commission sees the eurozone economy growing 1.4% in 2014, with a figure of -0.6% for 2012.
"The improved financial market situation contrasts with the absence of credit growth and the weakness of the near-term outlook for economic activity," said Marco Buti, the commission's director-general for economic and monetary affairs. "The labour market … is a serious concern," he said, in a preamble to the commission's latest forecasts."The improved financial market situation contrasts with the absence of credit growth and the weakness of the near-term outlook for economic activity," said Marco Buti, the commission's director-general for economic and monetary affairs. "The labour market … is a serious concern," he said, in a preamble to the commission's latest forecasts.
The European Central Bank's promise last year to do what it takes to defend its common currency has removed the risk of a breakup of the eurozone, and member countries' borrowing costs have come down from unsustainable levels.The European Central Bank's promise last year to do what it takes to defend its common currency has removed the risk of a breakup of the eurozone, and member countries' borrowing costs have come down from unsustainable levels.
But the damage from the 2008/2009 global financial crisis and the ensuing eurozone debt crisis has been greater than expected on the real economy, with global demand for eurozone exports one of the few saviours in terms of generating growth.But the damage from the 2008/2009 global financial crisis and the ensuing eurozone debt crisis has been greater than expected on the real economy, with global demand for eurozone exports one of the few saviours in terms of generating growth.
Joblessness in the eurozone is set to peak at 12.2%, or more than 19 million people, in 2013, the commission said. Both private and public consumption will drag on the economy, not making any contribution to improving output.Joblessness in the eurozone is set to peak at 12.2%, or more than 19 million people, in 2013, the commission said. Both private and public consumption will drag on the economy, not making any contribution to improving output.
The outlook raises the prospect of further interest rate cuts by the ECB to jump-start the economy by reducing the cost of lending for companies and families, although with banks reluctant to lend, any impact may be muted.The outlook raises the prospect of further interest rate cuts by the ECB to jump-start the economy by reducing the cost of lending for companies and families, although with banks reluctant to lend, any impact may be muted.
Consumer inflation is forecast by the commission to be 1.8% for 2013, and with such pressures contained the ECB may feel more comfortable cutting rates to below the current 0.75% level.Consumer inflation is forecast by the commission to be 1.8% for 2013, and with such pressures contained the ECB may feel more comfortable cutting rates to below the current 0.75% level.
"A cut in the main refinancing rate is not the most powerful measure the ECB could implement, but it is a step in the right direction," investment bank JP Morgan wrote in a note this week."A cut in the main refinancing rate is not the most powerful measure the ECB could implement, but it is a step in the right direction," investment bank JP Morgan wrote in a note this week.
The commission's overall view is a touch more pessimistic than that of the International Monetary Fund, which sees a 0.2% eurozone contraction this year. The commission's overall view is more pessimistic than that of the International Monetary Fund, which sees a 0.2% eurozone contraction this year.
The ECB previously cut its estimate of eurozone gross domestic product (GDP) for next year to between a fall of 0.9% and growth of just 0.3%. The ECB previously cut its estimate of eurozone gross domestic product for next year to between a fall of 0.9% and growth of just 0.3%.
"A weaker-than-expected final quarter of 2012 is set to shift the inception of the recovery towards mid-2013," the commission said."A weaker-than-expected final quarter of 2012 is set to shift the inception of the recovery towards mid-2013," the commission said.