Euro zone growth slows, outlook darkens but no recession: EU

Euro zone growth slows, outlook darkens but no recession: EU

Brussels: The EU’s economic outlook has “deteriorated" with the euro zone debt crisis contributing to slowing growth in the second half of the year, but no recession is in sight, the EU said on Thursday.

The economy in the single currency area is still expected to expand by 1.6% in 2011 despite the slowdown, thanks to stronger-than-expected growth in the first half of the year, the European Commission said.

The disappointing figures come as European Union finance ministers gather in Poland on Friday and Saturday for crunch talks aimed at resolving divisions over a new rescue package for Greece.

Euro zone growth is projected at 0.2% in the third quarter and a mere 0.1% in the last quarter of 2011, down 0.2 and 0.3 percentage points respectively from a previous forecast.

“The outlook for the European economy has deteriorated," EU economic affairs commissioner Olli Rehn said, unveiling the Commission’s interim economic forecast.

The economy is “expected to come to a virtual standstill" by the end of the year, Rehn told a news conference, adding, however, that “we don’t forecast a recession."

Rehn said: “Recoveries from financial crises are often slow and bumpy. Moreover, the EU economy is affected by a more difficult external environment, while domestic demand remains subdued.

“The sovereign debt crisis has worsened, and the financial market turmoil is set to dampen the real economy."

The commission also released growth prospects for Europe’s top seven economies.

Germany is the only country for which the forecast improved, with the commission projecting growth of 2.9% this year, up from 2.6% predicted in May.

The French economy is now expected to expand by 1.6% instead of 1.8%, while the forecast for Italy, a country under pressure from the markets over its high debt, was revised down to 0.7% from 1.0%.

The Netherlands will see growth of 1.7%, down 0.2-points from the previous forecast, while Spain’s economy is still believed to grow by 0.8%.

Outside the euro zone, Britain’s growth forecast was revised down to 1.1% from 1.7% while Poland’s prospects remain bright at 4.0%.

The European Commission said that weakening global demand and trade over the summer, and signs that the recovery lost steam in the United States, contribute to Europe’s economic slowdown.

“Hopes that the sovereign debt crisis would gradually fade were disappointed," the commission’s report said, referring to sharp falls in the stock markets in August over fears that Italy and Spain could be next in line to request bailouts.

“Financial market conditions deteriorated sharply over the summer on the back of sovereign debt concerns in the euro area and anxiety about the outlook for growth and fiscal sustainability in the US," the report said