The European Commission (EC) has published its Winter Economic Forecasts for 2012-2014 and now expects the Eurozone to register a contraction this year, although it does expect the European Union's (EU) economy to turnaround this year.

According to the new forecasts, the EU is expected to register GDP (gross domestic product) growth of 0.1% in 2013, although the Eurozone itself is expected to contract by 0.3%. This compares to the prior forecast for growth of 0.1% in the euro area.

The EC comments that the EU is "gradually overcoming headwinds (...) is now bottoming out and we expect economic activity to gradually accelerate". According to the report, the recovery will initially be driven by increasing external demand, while domestic investment and consumption are projected to recover "later in the year."

For the UK, GDP is expected to grow 0.9% in 2013, 1.9% in 2014 and then fall -0.3% in 2015. Unemployment will tick up this year from 7.9% to 8.0%, but is then projected to drop to 7.8% in 2014.

EC Vice-President and Commissioner for Economic and Monetary Affairs and the Euro, Olli Rehn, said: "The ongoing rebalancing of the European economy is continuing to weigh on growth in the short-term. The current situation can be summarised like this: we have disappointing hard data from the end of last year, some more encouraging soft data in the recent past, and growing investor confidence in the future.

"The decisive policy action undertaken recently is paving the way for a return to recovery. We must stay the course of reform and avoid any loss of momentum, which could undermine the turnaround in confidence that is underway, delaying the needed upswing in growth and job creation."

JM

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