EC optimistic of economic recovery in latter half of 2012 | WPN World People News

The European Commission Friday forecast that the economy is expected to recover slowly from the second half of the year, though in the interim the real GDP is likely to stagnate in the EU and to contract by 0.3% in the euro area.

In its Spring 2012-13 forecast, the executive arm of the 27-nation bloc said "the recovery is forecast to set in slowly from the second half of the year on. The picture presented in the interim forecast in February is broadly confirmed for 2012, with real GDP projected to stagnate in the EU and to contract by -0.3% in the euro area."

For 2013, the EC has projected the economic growth "at 1.3% in the EU and 1.0% in the euro area."

"A recovery is in sight, but the economic situation remains fragile, with still large disparities across member States," Olli Rehn, commissioner for economic and monetary affairs, said in a statement. "Without further determined action, however, low growth in the European Union could remain."

The official stressed that sound public finances are the condition for lasting growth, and building on the new strong framework for economic governance.

On the positive side, the report expects the inflation to moderate gradually as the impact of higher oil prices and tax increases fades away. Fiscal consolidation is forecast to progress, with public deficits in 2013 declining to 3.3% in the EU and just below 3% in the euro area.

But on the negative side, the EC has projected that "unemployment is expected to remain high at 10% in the EU and 11% in the euro area over the forecast period" as the GDP is projected to remain flat at 0.0% in the EU in 2012, before recovering to1.3% growth in 2013.

"As the outlook for the EU economy is slowly improving, the situation remains extraordinarily fragile, and the risk of a renewed aggravation of the crisis is still present," the head of the EU's economic and financial affairs Marco Buti wrote in the report.

"Renewed market volatility in recent weeks is a reminder that the stabilization cannot be taken for granted yet."

The report attributes the poor outlook in the near future to the pernicious interaction between weak sovereigns, weak banks and weak GDP."

The slowdown has affected all member states, growth differentials are expected to persist, underpinned by different structural adjustment needs, financing costs and public finances sustainability.

"Diverse external positions and structural conditions have contributed to the large cross-country disparities that emerged during the great recession," the commission said.

"Differentials in fiscal consolidation needs, domestic financing costs, and the banking sector's capacity to extend credit as well as different labor market situations accentuate this heterogeneity."

Source: Europe News.Net