The eurozone is at risk of going into recession and the outlook for the UK is
not much better, the European Commission warned, as it slashed its growth
forecasts.
"Growth has stalled in Europe, and there is a risk of a new recession," Olli
Rehn, the Commission's vice-president for economic and monetary affairs
said.
The Commission, which is the executive arm of the European Union, drastically
cut its forecast for growth in the eurozone euro to 1.5pc this year and 0.5
percent in 2012.
That's down from an earlier forecast of 1.6pc growth this year and 1.8pc next
year.
There were some particlarly alarming figures for Greece in the Commission's
forecasts - Greek debt is forecast to rise to 198.5pc of GDP by 2013, and
growth is expected to be minus 2.8pc next year.
The Commission also said the UK is likely to go into "negative territory"
because of a fall in investment.
Britain's economy will expand at a sharply lower pace in 2011 and 2012, growing by 0.7pc this year and 0.6pc next year, the Commission said.
A previous EU forecast had foreseen growth of 1.7pc in 2011 and 2.1pc in 2012.
"The slowdown which began at the end of 2010 now looks more like a prolonged soft patch," the Commission said. "Risks from the euro area sovereign-debt markets and the banking sector heighten this uncertainty.
"As such a contraction in GDP in at least one of the next few quarters cannot be ruled out."
Mr Rehn said he hoped people would not shoot the messenger for bringing bad news and that he hoped one day to have some postive forecasts.
The economic and monetary affairs commissioner said: "Uncertainty at the current juncture is high and downside risks to the EU outlook remain particularly acute.
"Some elements of the downside risks to earlier forecasts – such as financial turmoil and a lower momentum of global growth - have materialised.
"However, new risks have emerged, and the risk balance for the EU growth outlook remains now tilted to the downside.
"Further financial turmoil may have more substantial spill-over effects to other market segments and the real economy.
"The forecast depends crucially on the assumption on current challenges being successfully addressed. Should the response to the challenges lack timeliness, clarity or ambition, a more negative development and a relapse into recession cannot be excluded."
Britain's economy will expand at a sharply lower pace in 2011 and 2012, growing by 0.7pc this year and 0.6pc next year, the Commission said.
A previous EU forecast had foreseen growth of 1.7pc in 2011 and 2.1pc in 2012.
"The slowdown which began at the end of 2010 now looks more like a prolonged soft patch," the Commission said. "Risks from the euro area sovereign-debt markets and the banking sector heighten this uncertainty.
"As such a contraction in GDP in at least one of the next few quarters cannot be ruled out."
Mr Rehn said he hoped people would not shoot the messenger for bringing bad news and that he hoped one day to have some postive forecasts.
The economic and monetary affairs commissioner said: "Uncertainty at the current juncture is high and downside risks to the EU outlook remain particularly acute.
"Some elements of the downside risks to earlier forecasts – such as financial turmoil and a lower momentum of global growth - have materialised.
"However, new risks have emerged, and the risk balance for the EU growth outlook remains now tilted to the downside.
"Further financial turmoil may have more substantial spill-over effects to other market segments and the real economy.
"The forecast depends crucially on the assumption on current challenges being successfully addressed. Should the response to the challenges lack timeliness, clarity or ambition, a more negative development and a relapse into recession cannot be excluded."
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