Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

EU Expects 2012 Recession

Posted by hkarner - 23. Februar 2012

Date: 23-02-2012
Source: The Wall Street Journal

BRUSSELS—The euro-zone economy will fall back into recession at the start of this year and is now seen contracting in 2012 as a whole, the European Commission said Thursday.

The new forecasts will add to concerns about the impact of broad-based regional austerity plans.
The 2012 forecasts for Italy, Spain and Greece were all slashed—each of them countries that are applying significant fiscal consolidation.

On an annual basis, the 17-country euro-zone group is forecast to contract by 0.3% and remain unchanged in the larger European Union. Last November, the EU forecast euro-area gross domestic product up 0.5% this year and EU GDP up 0.6%.

The Commission now expects the euro-zone economy to decline in the first quarter by 0.3% in the euro area, after dropping by the same amount in the last quarter of 2011. A recession is broadly defined as two straight quarters of economic growth.

Italy’s 2012 outlook was among the most significant changes in the forecasts. The Commission now expects Italy’s GDP to contract by 1.3% versus a 0.1% expansion forecast last autumn.

Spain’s economy is expected to shrink 1% this year compared with the 0.7% growth foreseen last November. The new forecast will make it still harder for Spain to meet its 2012 budget deficit target of 4.4% of GDP this year.

2012 GDP Forecasts

Country New forecast Old forecast*
France 0.4% 0.6%
Germany 0.6 0.8
Greece -4.4 -2.8
Italy -1.3 0.1
U.K. 0.6 0.6
Euro zone -0.3 0.5
EU 0.0 0.6
Change from previous year. *Autumn 2011 forecast.
Source: European Commission

In a news conference after the report’s release, European Commissioner Olli Rehn reiterated that Spain must ensure it meets agreed deficit targets but left the door open for a change in the budget gap goal later this year, saying „decisions“
could come once more information was available in March.

The Commission said it saw Greece’s economy contracting at an annual pace of 4.3% in 2012, versus a previous forecast for a downturn of 2.8%. The Commission said it still sees substantial downside risks to Greece’s economy mirrored by very low consumer and business confidence.

In one of the few brighter spots, the Commission said it sees Germany’s economy recovering from a temporary slowdown as 2012 continues. It projects growth of 0.6% in Germany this year with the recovery driven by stronger domestic demand and a resilient labor market.

„Available indicators for the first quarter of 2012 signal an improvement in sentiment among both firms and households. This suggests that the growth momentum has experienced a temporary interruption rather than signaling an entry into recession,“ the outlook report said.

The Commission said inflation has remained more persistent than forecast due to high energy prices, as well as increases in indirect taxes.
Inflation is now seen at 2.1% in the euro area and 2.3% in the larger EU, compared with earlier forecasts of 1.7% and 2%. The EU executive says uncertainty remains high and risks are tilted to the downside.

„If an aggravation of the sovereign-debt crisis were to result ultimately in a credit crunch and a collapse in domestic demand, this would probably entail a deep and prolonged recession,“ according to the report.

While sovereign-risk perceptions have abated „somewhat“ in financial markets for certain countries, spreads remain at elevated levels and credit conditions for the private sector have been tightening.

„Economic sentiment is still at low levels, but stress in financial markets is easing. Many of the steps that were essential to deliver financial stability and to establish the conditions for more sustainable growth and job creation have now been taken,“ said Mr. Rehn.

The Commission anticipates that after an early recession in 2012, a gradual return of business and consumer confidence will come in the second half of the year. Growth is seen highest in Latvia, Lithuania and Poland and lowest in Greece and in Portugal.


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