The recession in the Euro-zone will be worse than expected with unemployment remaining at record levels, says the EU in its latest economic forecast. The EU said that GDP in the 17 Euro-zone countries will shrink by 0.4% this year, better than the 0.6% for 2012 but 0.1% points worse than the EU had forecast back in February.
“Grappling with the aftermath of a profound financial and economic crisis, the EU economy is set to pick up speed only very slowly in the course of this year,” the report said.
Across the Euro-zone, the three-year crisis over too much government debt and the accompanying austerity measures are weighing on activity - even in some of the more prosperous countries.
In Germany, the Euro zone’s largest economy, GDP growth is set to fall in 2013 from 0.7% in 2102 to 0.4% this year as demand from other struggling countries in Europe falls. France, meanwhile, is expected to fall into negative territory in 2013, with GDP dropping 0.1% in the year. Some countries, however, will fare far worse than others. In crisis-hit Cyprus, GDP is set fall by 8.7% this year.
Unemployment across the Euro zone is expected to hit an average of 12.2%, up from 11.4% in 2012. In both Greece and Spain it is expected to peak at 27%.
Commissioner Olli Rehn said that “in view of the protracted recession, we must do whatever it takes to overcome the unemployment crisis”.
There are 19.2 million people out of work in the Euro zone, leaving EU leaders with an uphill battle to turn the economy around while making sure the population keeps on backing the austerity measures to get public finances back in shape.
Rehn insisted that after the 2012 recession, GDP growth is expected to start pick up again in the second half of 2013. He added that, under the assumption of unchanged policies, GDP would even rise by 1.2% in 2014.
But overall, the news remained bleak as the report said that “the recovery of economic activity is expected to be too slow to reduce joblessness”.
He added that not much improvement in unemployment is expected in 2014 and “differences across member states are expected to remain very large”.