Eurozone set for continuing hard times

European flags fly in front of the European Parliament in the northeastern French city of Strasbourg (AFP Photo / Georges Gobet)
The Eurozone economy is set to face a mild recession later this year, despite recent signs of stabilization.

The European Commission forecast that economic output in the 17 nations sharing the euro will contract 0.3% this year, reversing an earlier forecast of 0.5% growth in 2012.

Greece, which has just clinched another massive bailout package, will be hardest hit, seeing a fifth-straight year of recession. But this time not just Greece which is expected to lead the way downwards with a staggering 4.4%, and Portugal, which will remain in deep recession, will suffer. The Commission now expects the economies of Belgium, Spain, Italy, Cyprus, the Netherlands and Slovenia to contract in 2012.

Germany and France, the eurozone's two largest economies, are likely to escape recession this year. The Commission says they will see marginal growth of 0.6% and 0.4% respectively.

The wider 27-nation EU, which includes non-euro countries, is expected to post flat growth this year. Britain is forecast see a 0.6% growth. Overall GDP growth is forecast to be negative in nine countries, stagnant in one and positive in 17. Growth will be highest in Poland, Latvia and Lithuania.

Olli Rehn, European Commissioner for Economic and Monetary Affairs, looks optimistically to the future despite the current battle with debt crises. Rehn says, “Although growth has stalled, we are seeing signs of stabilisation in the European economy. Economic sentiment is still at low levels, but stress in financial markets is easing.”

The stalled growth though is further widening the gap between the wealthy economies of northern Europe and those of the south that are most in need of growth to pay off debt.

EU leaders will hold a summit in Brussels next week where investors hope they will agree to raise the ceiling of the eurozone's joint rescue funds and pave the way for more IMF funds to stand behind heavily-indebted southern European economies.