Eurozone recession will persist in 2013, says European Commission

The European Commission has said Spain, France and Portugal have failed to cut overspending to agreed targets.

Spain’s government deficit was 10.2% of the country’s economic output in 2012, well above the agreed 6.3% target, and will stay far above target into 2014.

Meanwhile, the Commission joined other major international organizations in admitting that the eurozone economy would contract in 2013.

It is forecast to shrink 0.3%, making the governments’ task even harder.

Previously, the Commission had expected the 17 economies in the eurozone would collectively enjoy 0.1% positive growth this year.

Delivering its winter forecast, Commission Vice-President Olli Rehn said that the eurozone was nonetheless expected to rebound in the last three months of this year, registering 0.7% growth in the fourth quarter.

The Commission is concerned about a “surprise” fall in Portugal’s economy, which fell 3.2% in 2012 and is forecast to contract by another 1.9% in 2013.

Most economic forecasters have been revising down their European growth estimates, after the global economic recovery showed signs of faltering in the final quarter of 2012.

For example, in January the International Monetary Fund (IMF) said it expected the eurozone to fall into “mild recession” in 2013, having previously predicted growth.

It also predicted that the UK would grow 1% in 2013, compared with the 1.1% previously forecast.

The World Bank also revised down its global growth forecasts earlier in January.

But European Central Bank (ECB) president Mario Draghi believes the eurozone will begin recovering in the second half of this year.

And this week, Germany’s Bundesbank said Europe’s biggest economy would avoid recession and return to growth in the first quarter of 2013, after shrinking 0.6% in the last three months of 2012.

It expects Germany to continue growing throughout 2013.