* Euro zone growth seen at 0.5 pct in 2012
* Greek debt/GDP ratio seen at 198.3 pct in 2012
* Belgian debt/GDP seen rising above 100 pct in 2013
By Jan Strupczewski
BRUSSELS, Nov 10 Euro zone economic growth will
slow sharply next year as weak confidence undermines investment
and consumption and tighter fiscal policies reduce domestic
demand, the European Commission said on Thursday.
"Growth has stalled in Europe, and there is a risk of a new
recession," Vice-President for Economic and Monetary Affairs
Olli Rehn said in a statement.
In its twice-yearly economic forecasts for the 27 countries
of the European Union, the EU executive said it expected
economic growth in the 17 countries sharing the euro to slow to
0.5 percent in 2012 from an expected 1.5 percent this year.
Growth is to pick up to 1.3 percent in 2013, the Commission
forecast. The European Central Bank forecast in September that
euro zone growth in 2012 would be between 0.4 and 2.2 percent
after 1.4-1.6 percent this year.
The Commission expects the euro zone economy to contract 0.1
percent quarter-on-quarter in the last three months of 2011 and
sees zero growth quarter-on-quarter in the first three months of
"We do not expect a recession in our baseline scenario. But
the probability of a more protracted period of stagnation is
high. Given the unusually high uncertainty around key policy
decisions, a deep and prolonged recession complemented by
continued market turmoil cannot be excluded," the Commission
NO IMPROVEMENT SEEN IN EU EMPLOYMENT
Consumer price growth in the euro zone should also slow
sharply, to 1.7 percent in 2012 from 2.6 percent expected in
2011, the Commission said.
Inflation is then to decelerate even further to 1.6 percent
in 2013 -- well within the ECB's target of below, but close to 2
percent. The ECB forecast in September that inflation would be
in a range of 2.5-2.7 percent in 2011 and 1.2-2.2 percent in
"While jobs are increasing in some member states, no real
improvement is forecast in the unemployment situation in the EU
as a whole," Rehn said.
"The key for the resumption of growth and job-creation is
restoring confidence in fiscal sustainability and in the
financial system and speeding up reforms to enhance Europe's
growth potential," he said.
Markets are concerned that public finances in Greece,
Portugal, Ireland are unsustainable and effectively refuse to
lend to them.
Italy, which has public debt of 120 percent of GDP, and very
slow growth, has become the latest market concern and its
borrowing costs soared to unsustainable levels on Wednesday.
The Commission forecast that Italian public debt would
remain unchanged at 120.5 percent of GDP next year and ease to
118.7 percent in 2013 -- on the assumption of unchanged
Italy's budget deficit is to shrink to 2.3 percent of GDP
next year and 1.2 percent in 2013, from 4.0 percent expected
The country that started the euro zone sovereign debt
crisis, Greece, will see its public debt rise to 162.8 percent
of GDP this year from 144.9 percent in 2010 and then to 198.3
percent in 2012 and 198.5 percent in 2013, assuming unchanged
Greece, with the help of euro zone leaders, has negotiated a
debt reduction deal with private investors of 50 percent in
October, but its details have yet to be worked out.
(Reporting by Jan Strupczewski, editing by Luke Baker and