PARIS (MNI) – The European Commission sharply reduced its forecasts
for growth in the EU and the Eurozone for 2012 while also raising its
forecasts for inflation, suggesting that the European economy could
struggle with stagflation in 2012
The Commission said the economy in the 27-member EU will not grow
at all this year, a downward revision from a forecast of 0.6% growth
made in November. The 17-member Eurozone economy will shrink by 0.3%,
the Commission said, down from a previous forecast of 0.5% growth.
Olli Rehn, Commissioner for Economic and Monetary Affairs, said
that despite the weaker forecasts, conditions appeared to be
stabilizing.
“Although growth has stalled, we are seeing signs of stabilization
in the European economy,” he said in a statement. “Economic sentiment is
still at low levels but stress in financial markets is easing.”
The Commission said that growth divergence among individual EU
states remains wide, with the direction of GDP expected to be negative
in nine countries, stagnant in one and positive in 17.
The fastest growth is expected to be in the eastern European
countries of Poland, Latvia and Lithuania, while the weakest economies
will be in Greece and Portugal, the Commission said.
On inflation, the Commission said that the rate of price increases
in both the EU and the Eurozone will rise above 2% this year,
contrasting with the European Central Bank which has said inflation
should drop below 2% in 2012.
EU inflation is expected to average 2.3% this year, up from a
previous forecast of 2.0%, while Eurozone inflation is expected to
average 2.1%, up from a previous forecast of 1.7%.
Higher inflation is due to persistency high energy prices and
increases in indirect taxes, the Commission said.
–Paris newsroom, +33142715540; jduffy@marketnews.com
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