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Eurozone economy to shrink in 2013, says Commission

2013-02-22 13:01:43

The European Commission says the eurozone economy will shrink in 2013, after previously predicting that it would grow slightly.

Delivering its winter forecast, vice-president Olli Rehn said the 17 economies in the eurozone would collectively shrink by 0.3% this year.

The Commission had previously predicted overall GDP growth of 0.1%.

But it is also predicting that the eurozone will see 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.