The Eurozone is set to contract this year as the weakness of economic activity towards the end of 2012 implies a low starting point for the current year, the European Commission said in its Winter forecast published on Friday.
The 17-nation bloc is projected to shrink 0.3 percent this year, compared to the previous estimate of 0.1 percent growth. GDP in the fourth quarter of 2013 is forecast to grow by 0.7 percent from the same period of 2012.
"The ongoing rebalancing of the European economy is continuing to weigh on growth in the short term," Olli Rehn, Commission Vice-President for Economic and Monetary Affairs and the Euro said.
Domestic investment and consumption are projected to recover later in the year. As such, the region is likely to expand 1.4 percent in 2014, underpinned by domestic demand, it said.
The weakness in economic activity is forecast to lift euro area unemployment to 12.2 percent this year.
As the impact of higher energy prices on inflation is expected to wane, inflation is forecast to decrease gradually in the course of 2013 to 1.5 percent next year.
Since many member states are implementing sizeable fiscal consolidation measures, the commission projects the fiscal deficit to decrease to 2.8 percent in 2013.
by RTT Staff Writer
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