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Eurozone To Shrink in 2013

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The Eurozone is expected to shrink further in 2013, the European Commission acknowledged, reversing its earlier forecast of growth in the 17-member Euro-denominated region as their economies undergo a “balance-sheet adjustment process” that will weigh on short-term growth.

In a report today, the Eurozone is expected to contract by 0.3% after shrinking by 0.6% in 2012, as the member-states continue to struggle to get past what the EU referred to as the aftermath of a “deep financial crisis”.

The expected recession will further mean an increase in unemployment to 12.2% within the Euro from 11.4% last year, as domestic consumption and investment are still subdued.

By contrast, the whole of EU will see a 0.1% GDP growth though unemployment is still to rise by 11.1%.

Criticism against imposed austerity measures were seen by many analysts as the reason for the continued contraction in GDP, but the opinion on how to deal with government speeding is split.

Of the countries in the euro area, Greece was hit the hardest at a contraction of 6.4% and will continue to shrink further by 4.4% in 2013 and is projected to reverse its GDP into growth by 2014, at 0.6%.

The Commission, however, stated that growth will pick up the last quarter of 2013, at 1% in the EU and 0.7% in the Eurozone, compared to that of last year’s, which signals the growth projected for 2014 at 1.6% and 1.4% in the EU and the Eurozone, respectively.

Budget deficit in the euro area will be reduced to an average of 2.8%, whilst that of EU will be at 3.4%, though debt-to-GDP ratio will slightly increase.

The Commission’s Vice President for Economic and Monetary Affairs and the Euro, Olli Rehn, said decisive policy action 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,” he said.

European stock markets and major indices were on a high today, following the release of the winter forecast.

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