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EU cuts growth prediction

May 3, 2013

In the opinion of the EU Commission, the crisis-hit eurozone will remain stuck in recession this year. The slump is even set to worsen as the EU's executive arm forecasts a bigger rate of economic contraction.

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Image: picture-alliance/ZB/Montage DW

The recession in the eurozone will be worse than expected with gross domestic product (GDP) in the 17-nation currency area slipping by 0.4 percent rather than 0.3 percent as previously forecast, the European Union's executive Commission said Friday.

Europe's North-South divide

In 2014, the eurozone was expected to post modest growth of 1.2 percent - down 0.2 percent from a previous prediction in February, the Commission added in its annual spring economic forecast.

For the wider 27-member European Union, the commission also predicts a GDP contraction, with economic output shrinking by 0.1 percent in 2013.

According to the EU's executive, economic activity in Europe was expected to stabilize during the first half of this year. However, domestic demand would remain weak as a result of the financial crisis.

"While the financial market situation has improved significantly and interest rates have declined, this has not yet fed through to the real economy," the report said.

Unemployment to peak in 2013

The commission tipped Greece and Cyprus as likely to be the worst performers with rates of contraction of 4.2 percent and 8.7 percent respectively this year. France also gave reason for EU concern as Europe's second largest economy was expected to remain in recession, slipping 0.1 percent this year, before starting to grow again in 2014 at a rate of 1.1 percent.

By contrast, Germany appears to remain on the path of solid growth, as it is predicted to expand by 0.4 percent this year and 1.8 percent in 2014.

The gloomy EU growth figures are compounded by the ongoing jobs crisis, which the commission expects to peak at 12.2 percent this year before slipping back to 12.1 percent in 2014.

"In view of the protracted recession, we must do whatever it takes to overcome the unemployment crisis in Europe," said EU Economic Commissioner Olli Rehn. He urged eurozone member states to intensify structural reforms to unlock growth.

Unemployment was going to be especially high in Greece and Spain, the EU Commission's spring report said, with rates of about 27 percent.

uhe/hc (AFP, dpa)