Euro zone economy to shrink in 2012

The euro zone is heading into its second recession in just three years, the European Commission said Thursday, predicting that the 17-nation currency bloc’s economy will contract by 0.3 percent in 2012 instead of growing by 0.5 percent as forecast in November.

“The unexpected stalling of the recovery in late 2011 is set to extend into the first two quarters of 2012,” the European Commission said in its bi-annual forecast for the EU economy.

However, it stressed that the euro zone would experience only a “mild recession,” and that it saw “signs of stabilization.”

The Commission also predicted that the 27-nation EU economy, which generates a fifth of global output, would stagnate in 2012.

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

The commission also cited a “less supportive” global economy “weighing on net exports” as well as low business and consumer confidence in Europe, according to the Agence France Presse.

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In its November forecast, only Greece and Portugal were highlighted by the Commission as economies which would contract this year, the BBC reported.

Spain, Italy, Belgium, the Netherlands, Cyprus and Slovenia are now expected to shrink in 2012.

Greece is predicted to be the biggest drag on the euro zone economy this year, with a fifth year of recession expected to pull the struggling nation’s output down 4.4 percent.

Thursday’s growth forecast for the euro zone is marginally more optimistic than the International Monetary Fund’s prediction that output in the bloc will fall 0.5 percent this year, Reuters reported.

But both bodies agree that the currency area will manage only a modest recovery in the latter months of 2012.

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