Washington: The eurozone economy faces at least another year of recession and rising unemployment, European officials have reported, with some major nations expected to miss their government deficit targets despite painful rounds of cost cutting.Separately, the region received further bad news when the Moody's rating agency stripped the United Kingdom of its AAA rating — a step other firms may follow in coming days.
That could increase the country's borrowing costs and make it more difficult to meet its budget goals. Moody's said in its UK assessment that it expected 'sluggish growth. . . will extend into the second half of the decade'.
The latest forecast from the European Commission attempted to strike an overall positive tone, noting that the threat of a euro-region breakup seems to have been avoided and financial markets stabilised. The region's overall economy should begin growing again — however slowly — by the end of the year.
But the report's major findings and its detailed look at individual nations showed the stress still battering the 17-nation currency union, a major economic region that has been a drag on world growth for the past three years.
The region's fate has been a preoccupation of the United States administration, which has often cited Europe as the chief risk facing the global economy.
The profits of US businesses have been hit by declining sales in Europe, and companies such as Ford have been actively scaling back their industrial presence in the region.
Free-trade talks with US
US President Barack Obama recently agreed to open free-trade talks with the European Union in hopes of boosting growth on both sides of the Atlantic.
Since a looming sense of crisis first took hold in Greece, a country that flirted with default several times since late 2009, the area has been locked in a furious debate over the need for government austerity versus the human cost of scaling back Europe's extensive array of social, health and pension benefits. Most governments have been reducing spending or raising taxes to battle the debt crisis and meet strict deficit targets.
But recession and rising unemployment have highlighted the tangled nature of Europe's choices: even nations such as France that are feeling the pain of strict fiscal medicine are not likely to meet their deficit targets, the commission reported.
Budget cutting in places such as France, as well as the deeper troubles faced in Spain and bankrupt Greece, "are continuing to weigh on growth," said Olli Rehn, commission vice-president. Still, "we must stay the course," Rehn said.
When a turnaround will happen, however, remains in doubt. Recent data have shown that the region's economy fell faster than expected at the end of 2012, and organisations such as the International Monetary Fund and now the commission have written down their forecasts for 2013.
In the analysis released on Friday, the commission said it expects the euro-currency zone to contract 0.3 per cent this year.
The hope, however, is that the region's recession is easing and growth will resume toward the end of year — particularly if the US and other major parts of the world pick up. The commission expects the eurozone to grow 1.4 per cent in 2014.
The larger EU, which includes the UK, is expected to grow this year — but barely, at 0.1 per cent. The US, by contrast, is expected to expand 1.9 per cent this year.Even those numbers could prove optimistic as the region struggles with the fallout.