EU says eurozone economy to shrink again in 2013

BRUSSELS (AP) - The European Union predicted Friday that the economy of the 17 member countries that use the euro will shrink again in 2013 even though it will see its fortunes improve in the second half of the year.

In its winter forecast, the EU Commission, the EU's executive arm, said the eurozone is likely to shrink a further 0.3 per cent this year, in contrast to November's prediction of 0.1 per cent growth.

Across the eurozone, it said the debt crisis and the associated belt-tightening are weighing on activity - official figures showed the eurozone contracted 0.6 per cent in the final quarter of 2012 from the previous three-month period. The eurozone has been in recession - officially defined as two consecutive quarters of negative growth - since the second quarter of 2012, when concerns about the future of the euro were particularly acute.

Many countries are in deep recessions, such as Greece and Spain, as they push spending cuts and tax increases to deal with their public finances. Others have suffered in the fallout, such as export powerhouse Germany, Europe's largest economy, which contracted by a quarterly rate of 0.6 per cent in the final quarter of 2012.

Despite what it terms "headwinds," the Commission expects the eurozone recession to bottom out over the first half of 2013. By the fourth quarter, it forecast that the eurozone economy will be 0.7 per cent bigger than the same period in 2012. In 2014, growth of 1.4 per cent was penciled in.

"The decisive policy action undertaken recently is paving the way for a return to recovery," said Olli Rehn, the Commission's top economic official.

A number of recent economic indicators have pointed to an improving outlook, particularly in Germany. Much of the recent calm in financial markets with regard to the eurozone has been credited to the debt-reduction measures and a commitment by European Central Bank President Mario Draghi to do "whatever it takes" to save the euro.