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Europe Foresees Weak Recovery Next Year Europe Foresees Weak Recovery Next Year
(about 5 hours later)
BRUSSELS — The European Union will experience only a very weak economic recovery during 2013 while unemployment will remain at “very high” levels, according to a gloomy set of forecasts issued Wednesday by the European Commission. BRUSSELS — The European Union will experience only a very weak economic recovery next year and unemployment will remain at “very high” levels, according to a gloomy set of forecasts issued Wednesday by the European Commission.
This year, gross domestic product will shrink by 0.3 percent for the 27 members of the Union as a whole and by 0.4 percent for the 17 countries in the euro area, the commission predicted. Growth in 2013 will be a meager 0.4 percent across the Union and only 0.1 percent in the euro area, it said. The forecasts, combined with European business’s general disappointment about the outcome of the U.S. presidential election, helped send stocks lower on the Continent and in London on Wednesday — a downward drift that carried over to Wall Street through midday there.
The figures represent a significant downgrading of expectations. In its spring economic forecast, the Commission said gross domestic product in the euro zone would shrink by 0.3 percent in 2012 but would then rebound with 1 percent growth in 2013. The spring forecast said growth in the Union as a whole would remain flat in 2012 but then hit 1.3 percent in 2013. Gross domestic product will shrink 0.3 percent for the 27 members of the European Union as a whole this year, and 0.4 percent for the 17 members in the euro zone, the commission predicted. Growth in 2013 will be 0.4 percent across the Union and 0.1 percent in the euro area, it said.
The commission said Wednesday that Europe would have to wait more than a year to generate “a stronger and more evenly distributed expansion.” It forecast growth in 2014 of 1.6 percent across the Union and of 1.4 percent in the euro area. The figures represent a significant downgrade of expectations. In its spring economic forecast, the commission had predicted G.D.P. in the euro zone would shrink 0.3 percent this year before rebounding to growth of 1 percent next year. The spring forecast had also said growth in the Union as a whole would remain flat this year but then rise to 1.3 percent in 2013.
Olli Rehn, the European commissioner for the euro, sought to put a positive spin on the figures by saying that they showed “a gradual improvement in Europe's growth outlook from early next year.” He also highlighted that “market stress has been reduced” since European leaders began changing the institutions running the euro and since the European Central Bank pledged to shore up vulnerable economies. Now, the commission predicts Europe will have to wait more than a year to generate “a stronger and more evenly distributed expansion.” It forecast growth for 2014 of 1.6 percent across the Union and of 1.4 percent in the euro area.
But Mr. Rehn acknowledged that Europe was going through a “difficult process of macroeconomic rebalancing, which will still last for some time,” and he also highlighted a need to “bring unemployment down from the current unacceptably high levels.” Olli Rehn, the economic and monetary affairs commissioner, sought to put a positive spin on the figures by saying they showed “a gradual improvement in Europe’s growth outlook from early next year.” He also highlighted that “market stress has been reduced” since European leaders began to overhaul the institutions running the euro and since the European Central Bank pledged to shore up vulnerable economies.
Unemployment will peak in 2013 at slightly below 11 percent across the Union and at 12 percent in the euro area, according to the commission's forecast. But Mr. Rehn acknowledged that Europe was going through a “difficult process of macroeconomic rebalancing, which will still last for some time.” And he highlighted a need to “bring unemployment down from the current unacceptably high levels.”
James Nixon, chief European economist at Société Générale in London, said that if anything, the figures were likely to overestimate growth prospects. “It’s going to be a tough couple of years,” he said. Unemployment will peak next year at slightly below 11 percent across the Union and at 12 percent in the euro area, according to the commission.
“It is quite a pessimistic conclusion on Spain, which suggests that they are going to miss deficit targets by a distance” Mr. Nixon said. “I think the implication of that is that we are likely to see more austerity next year, and that means that the growth outlook will be worse than predicted. James Nixon, chief European economist in London for Société Générale, said the figures probably overestimated growth prospects. “It’s going to be a tough couple of years,” he said.
“The countries of Southern Europe are engaging in multi-year adjustment programs. It is unrealistic to expect Spain and Italy to exit these programs before 2015.” In its report, the commission attributed the grim outlook in part to a “weak starting point” in 2012, including the likely worsening of the government debt crisis in countries like Spain during the first half of the year, which fed concerns about the viability of the euro and added to stresses in the banking sector.
In its report, the commission partly blamed the grim outlook on a “weak starting point” in 2012, including the worsening of the sovereign debt crisis in countries like Spain during the first half of the year that fed concerns about the viability of the euro and added to stresses in the banking sector. “It is quite a pessimistic conclusion on Spain, which suggests that they are going to miss deficit targets by a distance,” Mr. Nixon said. “I think the implication of that is that we are likely to see more austerity next year, and that means that the growth outlook will be worse than predicted.
Both the public and private sectors have since found it somewhat easier to obtain funding, and much needed adjustments in wages and prices have been under way. “The countries of Southern Europe are engaging in multiyear adjustment programs,” he said. “It is unrealistic to expect Spain and Italy to exit these programs before 2015.”
But the report also warned of dangers ahead, including “distress in more vulnerable member states has progressively started to affect the remainder of the Union.” The report also underlined the hazard the European Union faces from devastatingly high levels of unemployment, which could “bring social hardship and a destruction of human capital detrimental to longer-term growth.”
The report also underlined that the Union faced hazards from devastatingly high levels of joblessness that could “bring social hardship and a destruction of human capital detrimental to longer-term growth.”
Specific country targets reported by the commission included the following:Specific country targets reported by the commission included the following:
Spain Shrinkage of 1.4 percent this year and next before returning to growth of 0.8 percent in 2014. Spain G.D.P. shrinkage of 1.4 percent this year and next before returning to growth of 0.8 percent in 2014.
Greece Shrinkage of 6.0 percent this year and of 4.2 percent in 2013, before returning to growth of 0.6 percent in 2014. Greece A contraction of 6 percent this year and of 4.2 percent in 2013, before returning to growth of 0.6 percent in 2014.
Germany Growth in the bloc’s biggest economy of 0.8 percent this year and next, and of 2.0 percent in 2014. Germany Growth in the bloc’s biggest economy of 0.8 percent this year and next, and of 2 percent in 2014.
France Growth of 0.2 percent this year, 0.4 percent in 2013 and 1.2 percent in 2014.France Growth of 0.2 percent this year, 0.4 percent in 2013 and 1.2 percent in 2014.
Stephen Castle contributed reporting from London.Stephen Castle contributed reporting from London.

This article has been revised to reflect the following correction:

This article has been revised to reflect the following correction:

Correction: November 7, 2012Correction: November 7, 2012

An earlier version of this article provided incorrect growth forecasts for Spain, Greece, Germany and France. They have been removed.

An earlier version of this article provided incorrect growth forecasts for Spain, Greece, Germany and France. They have been removed.