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Euro zone to shrink further into recession

Friday, February 22, 2013 - 01:50

Feb. 22 - The European Commission says the euro zone will not return to growth until 2014, predicting the bloc's economy will shrink by 0.3% this year as Spain and France overshoot deficit targets. Ivor Bennett reports.

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The backdrop for the announcement was perhaps a little optimistic. Rather than overcoming headwinds, the euro zone's about to be blown further into recession. EU Commission Olli Rehn's winter forecast gave some chilling news. (SOUNDBITE) (English) EU ECONOMIC AND MONETARY AFFAIRS COMMISSIONER OLLI REHN SAYING: "Our projection for this year is that there will be zero growth in the European Union as a whole and minus 0.3 percent GDP growth in the euro area." The EU had predicted growth of 0.1% this year. But it now admits the recession will drag on, for at least another year. The Commission blames the lack of bank lending. As well as record unemployment And the number of jobless is expected to get even higher this year, hitting over 19 million. Despite the bad news, ECB board member Joerg Asmussen says the central bank won't be easing policy. SOUNDBITE (English) ECB BOARD MEMBER JOERG ASMUSSEN SAYING: "There are a number of outstanding economic challenges in the euro area but they cannot be tackled by monetary policy. It is up to governments to do this and I think our stance is appropriate as it is." But peripheral euro zone economies like Spain are suffering. Its deficit was over a tenth of economic output last year - way above its 6.3% target. The problem's also hitting the core - France is another that overshot deficit limits. Further evidence the bloc's second biggest economy is on the slide. In this week's PMI index, France slumped to its lowest level in 4 years - showing a services and manufacturing sector in serious trouble. One bright spot is Germany. This week the country's Bundesbank forecast growth would return by April. But at this rate, it'll be on its own.

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Euro zone to shrink further into recession

Friday, February 22, 2013 - 01:50