MercoPress. South Atlantic News Agency

EU confirms Euro zone heading for its second recession in three years

Economic and Monetary Affairs Commissioner Olli Rehn

The Euro zone's economy is heading into its second recession in just three years, while the wider European Union will stagnate, the EU executive said, warning that the currency area has yet to break its vicious cycle of debt.

However, the EU top economics official said that recent surveys pointed to just a mild slowdown for the Euro zone.

“Recent developments in survey data suggest that the expected slowdown will be rather mild and temporary,” EU Economic and Monetary Affairs Commissioner Olli Rehn told a news briefing following the release of the European Commission's interim report on the EU economy.

“But the turnaround of the trend still needs to be confirmed in the coming months and it essentially depends on the policy decisions to be taken,” he said.

The Commission forecast that economic output in the 17 nations sharing the Euro will contract 0.3% this year, reversing an earlier forecast of 0.5% growth in 2012. The wider, 27-nation European Union, which generates a fifth of global output, will not manage any growth this year, the Commission said.

“The EU is set to experience stagnating GDP this year, and the Euro area will undergo a mild recession,” it said.

“Negative feedback loops between weak sovereign debtors, fragile financial markets, and a slowing real economy do not yet appear to have been broken,” the Commission said.

The Euro zone was last in recession in 2009, dubbed the Great Recession worldwide, when the economy contracted 4.3% during the deepest global slump since the 1930s.

Inflation for the Euro zone this year should come to nearer to what the European Central Bank judges about the right level for stable prices and a healthy economy: 2.1%, the Commission forecast.